Cash flow common mistakes

Common mistakes

• Confusing cash flow with profit

  Assuming that a business is profitable if it has positive cash flow

  Fix itProfit is an accounting measure of revenue minus expenses; a business can be profitable but still have cash flow problems if cash is tied up in inventory or receivables.

• Confusing cash flow with profit

  Assuming that cash flow equals profit.

  Fix itCash flow measures actual cash movement, while profit is the accounting surplus after expenses; a profitable business can still have negative cash flow.

• Confusing opening balance with cash inflow

  Assuming the opening balance is a cash inflow for the period.

  Fix itThe opening balance is the cash available at the start of the period; it is not counted as an inflow.

• Confusing revenue with profit

  Assuming that revenue equals profit.

  Fix itRevenue is the total sales income; profit is revenue minus all costs, including fixed, variable, and operating expenses.

• Assuming overdraft is always the best solution

  Thinking that an overdraft will always solve a cash flow problem because it provides quick cash.

  Fix itOverdrafts carry high interest and may not be suitable for long‑term cash shortages; businesses should first explore cheaper or non‑credit options such as rescheduling payments or reducing outflow.