Cash Flow Positive vs. Profitability...Aren’t These The Same Thing?

...well, aren’t they?

Being cash flow positive and profitable may sound like the same thing, but they’re not. Both cover the categories of money coming in and when money comes in, you ultimately make a profit...right?

We don’t mean to confuse you at all, so we’re here to offer a little simple breakdown.

Consider what it’s like to run a business from the perspective of the day-to-day. Imagine you have a storefront and you sell stationary and accessories and fun and wacky gifts like banana zipper pouches and local popsicles and birthday cards that, when people open them, they have to laugh out loud. Say it’s a Monday. Your employee shows up on time for work. (Yay!) She preps the store for business. You open. Throughout the day, customers come and browse. After school, kids stop in and buy popsicles. A mother who is looking for invitations for her son’s 5th birthday party buys a stash of invitations, name plates, party favors, thank you cards, and adds in a wacky elephant mug for her best friend. Money is coming in. The sun is shining. Business is good. That’s the day to day.

Now, consider business in the long run. When you consider business from the “big picture perspective,” days won’t always be that sunny. Some days, no matter how cute your stationery is and how inviting your window displays are, maybe no one shops with you? Even on those days, you will still have to pay your employees. You still have to cover your rent each month. You can’t bribe the kids to buy ALL the popsicles. When they’re all out, you will still have to re-stock your hilarious birthday cards. During those sad spells, money still goes out even though no money is coming in.

Cash flow positive is like the day-to-day. It’s the simple nature of flow to your bank account, only you have more money coming in than you do going out.

Profitability is what you can celebrate once you’ve come out on top at the end of your fiscal year.

Cash Flow Positive

Cash flow is all about what is coming in and going out of your business bank account. In and out. In and out. Business runs on business, so keeping tabs on what comes in and what goes out is a no-brainer. No matter what line of business you’re in, you experience that cash flow. Cash flow positive simply means that you have more coming in than you do going out, but the reality is that doesn’t immediately translate to profitability just yet.

We all want to think that the moment cash hits our bank account, it means we’re rich. But so many factors should be taken into consideration before we find out how much money we really have left. And in business, keeping money stashed aside for emergencies will always be a good idea.

Think of cash flow like an exchange and profitability as what happens when you do your math just right and come out on top at the end of the year.

Profitability

After all of your expenses (like, rent, equipment, payroll, marketing, (...and popsicles?) etc.) have been paid and you’re certain you’ve evened up all around town, now is the time to do your math. Was your business profitable? Does it all add up? When you’re certain that what came in trumped what went out, then you’re free to pop the champagne and celebrate. Congratulations! You’re a big shot!

Business Can Be a Scary Ride

Keep in mind that in business, the possibility of being profitable may still have scary ups and downs. Some days you will be certain that business is good and will stay that way forever. Other days, you will be so upset, you’re certain that things will never turn around.

When it comes to business, you won’t ever be able to avoid that roller coaster of emotional feelings. (Sorry!) Negative cash flow can terrify small business owners, and yet, at the end of the fiscal year, they still could make a profit. There is always hope! Don’t let one bad day or one bad spell of a season get you down. It’s not time to close up shop, yet.

In business, if you’re the one in charge, it’s always a good idea to keep the big picture in mind while you hire someone else who can help you navigate through the day to day. If you’re someone who can easily toggle between the two, you’ll be dynamite.