Although it would be accounted for as part of profit and loss, the cash itself might not be in your bank for 30 days – depending on your payment terms. Typically, money is accounted for when an invoice is raised but not necessarily when it is received. It’s important to understand the difference between those two things. However, it is possible to have a profit and no cash or a loss and lots of cash! Your bank balance is not your profit and loss account. If you incur more costs than you bring in money then you end up with a loss, and if you bring in more money than you spend in costs then you end up with a profit. That comes off your income figure and gives you a bottom line, which is what your tax bill is based on. You have your income and all the expenses calculated against your income. To start with, let’s separate the definitions of profit/loss and cashflow in financial terms. It’s all very individual, but hopefully some of these hints and tips will help. Although the primary way that businesses generate cash is by selling their product, there are lots of different ways to think about cashflow and how it will affect your business. In the current circumstances cashflow is absolutely key in keeping your business running. I see it as the lifeblood of a business, which needs to keep pumping round for the business to stay alive. The focus in a business is often on profit, loss, the balance sheet and the tax bill but cashflow itself can go under the radar.
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