The key difference between cash flow and profits; profit indicates the amount of money remaining after paying all expenses; cash flow indicates the net cash in and out of your business.
To illustrate this point, a company can be profitable while having a negative cash flow, which will hinder its ability to pay its expenses. On the contrary, a company can be cash flow positive and increase sales and still fail to make a profit. This often happens with startups and growing companies.
Which one is more important? Both profit and cash flow are essential but keep in mind, while it is highly important for a business to be profitable, a good cash flow is crucial.
According to research done, the prime reason small businesses fail is cash flow issues. In fact, a whopping 82% of small businesses fail because of poor cash flow management skills and a poor understanding of cash flow.
Let this fact sink in. A company will typically not go out of business for lack of profit but rather for lack of cash flow.