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Understanding the Difference Between Cash Flow and Profitability

Understanding the Difference Between Cash Flow and Profitability

Posted On: September 15, 2020 by Falcon National Bank in: Manage your Business | Business Banking

New entrepreneurs are often confused by the jargon that comes along with opening and operating a small business. Two of these terms are cash flow and profitability. On the outside, it seems like these two terms are interchangeable, but they refer to two very different aspects of running a company. So what is the difference between cash flow and profitability? Let’s Break it Down: What is Cash Flow? Put simply, cash flow is the money that a company regularly pays and receives. It is made up of the income regularly coming in and the operating expenses going out. These can include daily operational costs, inventory purchases, taxes, and payroll. Cash flow is best described as the money you have on hand and operate with daily. Having a positive cash flow should be one of the main goals of a company. This allows the company to reinvest in itself, settle debts, and pay other business expenses. A negative cash flow, on the other hand, can be devastating to a company–especially

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