Profit vs Cash Flow

Tracking the right numbers helps small businesses stay profitable and avoid cash crunches. The core financial numbers every small business owner should monitor include profitability, liquidity, and growth metrics.

Cash Flow

What it is: The net amount of cash moving in and out of your business.

Why it matters: Profit on paper does not pay bills; available cash does.

Target: Always maintain a positive cash buffer.

Gross Profit Margin

What it is: Revenue left after subtracting direct production costs (Cost of Goods Sold).

Formula: (Revenue – COGS) ÷ Revenue × 100

Why it matters: Shows if your core pricing and direct labor costs are sustainable.

Net Profit Margin

What it is: The percentage of revenue left after paying all expenses.

Formula: Net Income ÷ Revenue × 100

Why it matters: Shows the true bottom-line health of your operations.

Operating Cash Flow

What it is: Cash generated from normal, daily business operations.

Why it matters: Confirms if your core business model generates real money without relying on outside loans.

Accounts Receivable (AR) Days

What it is: The average number of days it takes clients to pay invoices.

Why it matters: High AR days tie up working capital and strain your cash flow.

If you find that you’re spending too much time trying to work through your finances, it might be time to consider investing in a good bookkeeping service.

We serve behind the scenes, building healthy financial foundations, structures, and processes that help small businesses increase their profits by optimizing their bookkeeping and providing actionable data they can use to grow their business.

If this is a partnership that you need on your team, head over to our Discovery Form for a complimentary consultation.