Cash versus profit

Cash is the money a business can use now to make payments. Profit is a calculated surplus: total revenue minus total costs. Cash and profit are not the same thing, and one does not automatically give you the other.

Profit becomes cash only when a customer pays and the payment clears. Suppose a bike repair workshop completes a £500 repair for a local club. Parts and labour cost £300, so the job records £200 profit. If the club is invoiced and pays a month later, that £200 is not cash available during that month. The workshop may look profitable but still have little cash in the bank. Money owed by customers is not cash it can spend yet, even though the sale has been recorded as revenue and has contributed to profit.

A profitable business can also have cash tied up in assets such as stock, tools or premises. Those things may help it trade, but they are not money available to make payments. On the other hand, a business can have cash without being profitable. A shop might receive a £2,000 loan, giving it cash to use, while its current costs are higher than its revenue, so it is making a loss.