Cash Flow Isn’t Profit (and Why That Matters)
One of the most common and frustrating moments for business owners sounds like this:
“You’re telling me I’m profitable, but I feel broke.”
In Episode 7 of the R Readiness Lens podcast, Sheri Radler is joined by Nikki Mullins, Director of Client Services at R Accounting Group, to unpack why this disconnect happens so often. The issue is not that the business is failing. In many cases, it is doing exactly what it was designed to do. The problem is timing.
Understanding the difference between profit and cash flow is one of the most important steps toward business readiness.
Listen to the podcast episode:
Revenue, Profit, and Cash Are Telling Different Stories
Sheri often frames this conversation with a simple phrase: revenue is vanity, profit is sanity, and cash is reality.
Revenue shows activity. It feels good to talk about. It can look impressive from the outside. But revenue alone does not tell you whether the business actually works.
Profit validates the business model. It tells you that what you are selling makes sense after costs and overhead. A positive bottom line means the model is functioning.
Cash determines what you can do next. Cash answers the question of whether you can make payroll, pay taxes, hire, invest, or weather a slow period. Cash is what keeps the business moving day to day.
When these three are confused or treated as interchangeable, stress builds quickly.
Why Cash Stress Shows Up at the Worst Times
Cash pressure rarely appears randomly. Nikki points out that it almost always shows up during predictable moments. Payroll week. Estimated tax payments. Right after a growth push.
These moments feel stressful not because the owner is doing something wrong, but because obligations collide. Timing matters more than discipline in these scenarios.
A business can be profitable and still feel constant pressure if the cadence of money coming in does not match the cadence of money going out. This is especially common during growth, when inventory, hiring, or increased expenses happen before collections catch up.
Growth Can Make Cash Feel Worse Before It Gets Better
One of the hardest lessons for owners to accept is that growth often increases cash strain before it relieves it.
Selling more means more accounts receivable. It means spending on inventory, payroll, or services upfront. Cash leaves the business long before it returns.
Just because revenue is earned does not mean it has been collected. That gap is where stress lives.
Monthly averages can also create a false sense of security. Seeing a $2,000 monthly insurance expense on the Profit and Loss statement feels manageable, but writing a $24,000 check does not. Cash does not care how expenses are averaged. It moves when it moves.
Where the Money Actually Went
When business owners ask where the money went, the answer is rarely found on the Profit and Loss statement alone. This is where Sheri and Nikki emphasize shifting to the balance sheet.
Comparing last year’s balance sheet to the prior year reveals how money moved. Cash may have been converted into inventory. Debt may have been paid down. Assets may have increased. Owner draws may have gone out.
None of these are inherently bad. But without looking, owners assume something is wrong when in reality money simply changed form.
The balance sheet shows ownership, obligations, and equity. It tells the story of every decision made, not just what happened this month.
Why Bank Balances Create False Confidence
Relying solely on the bank balance is one of the most common habits that creates confusion. A bank balance is a snapshot. It only knows what has cleared.
It does not know about payroll coming next week. It does not know about checks written but not deposited. It does not know about taxes due or large upcoming expenses.
Cash flow planning looks forward. It acknowledges what is coming, not just what has happened.
Cash Flow Does Not Have to Be Complicated
One of the most reassuring parts of this conversation is that cash flow management does not need to be complex.
A simple weekly or bi weekly cash check in can make a significant difference. Start with the bank balance. Add known incoming deposits. Subtract known outgoing obligations. The resulting number shows the cash you actually have to work with.
Many businesses use a basic spreadsheet. Others build a 13 week view. The format matters far less than the habit.
Looking ahead creates options. It prevents last minute reactions and five o’clock Friday emergencies.
Profit Builds the Future, Cash Builds the Present
Sheri summarizes the distinction clearly. Profit builds the future of the business. Cash builds the present.
Readiness comes from understanding both and knowing when to focus on each. When owners can separate profit from cash, they feel less burdened and more in control.
Clarity creates confidence. Confidence supports better decisions.
Readiness Through Understanding
This episode reinforces that cash flow challenges are not a sign of failure. They are a sign that the business is operating and growing.
Understanding how money moves through the business helps owners protect themselves from unnecessary risk. It allows them to plan instead of react. To make decisions with information instead of fear.
That is what readiness looks like.
