Profit and cash flow answer different questions. Profit compares income and expenses under the accounting method used. Cash flow tracks money entering and leaving the bank. A business can record a profitable sale before the customer pays, while wages and suppliers still require cash now.
A practical workflow
- Put expected receipts in the month you expect payment, rather than automatically in the invoice month. State assumptions about deposits, payment terms and late collections.
- List actual payment timing for suppliers, payroll, equipment and other outflows. Keep borrowing and owner contributions visible so they are not mistaken for sales.
- Calculate opening cash plus receipts minus payments to obtain closing cash. Carry that closing balance into the next month and compare the forecast with actual movements.
Worked example
An illustrative business starts with $2,000, invoices $5,000 but collects only $1,000 this month, and pays $2,500. Its closing cash is $500. The invoice may contribute to profit under accrual accounting, but it cannot fund a payment until collected. Use one stated currency throughout your own worksheet.
What to check before sharing
Do not mix revenue, receipts and bank balances in the same column. A forecast is an estimate, not a guarantee, and should be reviewed when payment dates or commitments change.
Which measure should I watch?
Watch both. Profit helps assess the economics of the work; a cash forecast helps assess whether scheduled payments can be met. Ask an accountant about the accounting treatment of your own records.