---
title: Understanding cash flow vs profit
description: Understanding cash flow vs profit
---
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# Understanding cash flow vs profit
## The difference between cash flow and profit - explained
Profit and cash are not the same thing, and this difference catches many new directors by surprise.
### The difference
Profit is calculated on an accruals basis: income is recognised when invoiced, costs when incurred. Cash is what is actually in your bank account. A business that invoices a large amount in March but does not get paid until May will show a profit in March but have no cash until May.
### Why both matter
Your business can be profitable on paper while running out of cash (if customers pay slowly or you have large upfront costs). It can also have cash in the bank while making a loss (if you received deposits upfront for work not yet delivered). Keep an eye on both the Profit & Loss and the bank balance.
đź’ˇ **Good to know:** The simplest cash flow habit is checking your bank balance every Monday morning alongside your Aged Receivables report. Together, they tell you whether you can meet your commitments for the coming month.
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