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CW Asset Finance | Vehicle & Equipment Finance Yorkshire

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What is the difference between cash flow and profit?

Profit measures performance over an accounting period: revenue less costs. Cash flow measures the movement of money in and out of your bank account over the same period. They differ because accounting recognises income and costs when they are incurred, while cash moves when payments are actually made and received.

A profitable business runs out of cash when the timing works against it — customers on long payment terms, stock bought ahead of sales, tax bills falling due for profits earned months earlier. Conversely, a business can hold plenty of cash in a period while trading at a loss, for example after taking a large deposit or drawing down a loan.

The practical implication is that you cannot manage one by watching the other. Profit tells you whether the business model works. Cash flow tells you whether you can pay next month’s wages.

Lenders look at both, alongside your balance sheet. Your accountant is the right person to explain how the two reconcile in your own figures.

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CW Asset Finance is a credit broker, not a lender. Finance is subject to status and lender approval.