Cash flow is different than profit. A lot of business owners focus on just profit and not cash flow and profit.
Cash flow refers to money flowing in and out of your business. Cash inflow in would be revenue from sales of your product or service or it could be a business loan. Cash flow out would be expenses like paying vendors or employees.
Profit is reflected on your profit & loss statement (or income statement). This shows all your revenue less your expenses which is what your profit is made up of.
Your company may be profitable but have no cash due to large expenditures which can cause issues when trying to pay bills or payroll. You may have profit but used cash for extra owner distributions, buying assets (like a company vehicle) or paying off loans. These do not show on your profit and loss statement so that is why it is important for business owners to keep an eye on their cashflow statement. If you do not understand your cash flow you may come up short when paying bills especially at year end when expenses like property tax or estimated taxes are due. You may also be profitable but have no cashflow if you have a large accounts receivables balance or a large amount of funds sitting in inventory. Accounts receivables are funds that customers or clients have not paid to you yet. Make sure you watch the terms you are extending to your customers and that they are paying on time. Also make sure your inventory levels are consistent with your sales. Holding less inventory when you are in slower sales cycles will help to keep your inventory in line with your revenue.
On the reverse side the a business may have a lot of cashflow but may not have profit. This could be due to a recent business loan, sale of an asset, or having extended payment terms with vendors. If a business is just starting than cashflow may be more important than profit. You need cash to invest in the business for start up costs, and to pay vendors and employees. I
Some factors that contribute to cash flow problems are inconsistent sales cycles, late payments from customers and unexpected expense. It should be a goal of business owners, like in personal finances, to have an emergency fund to help with cashflow during times of decreased revenue. Business owners should also work with your vendors to make sure they are getting the best payment terms. This can help to extend cash flow.
In summary business owner should be monitoring their Profit and loss statement along with their cash flow statement. This will give the best picture of the financial health of their business.