When a founder tells me “We’re profitable!”, I ask one follow-up question: on paper, or in the bank?
You can have a profitable P&L and still be unable to make payroll.
Two different measures
- Accounting profit: revenue earned minus expenses incurred.
- Cash flow: cash collected minus cash spent.
The timing between them is everything. A big sale you haven’t collected is revenue. It isn’t cash.
When the spreadsheet says yes
I once reviewed a model where everything looked right. Revenue climbing, margins healthy, growth smooth. Something felt off. The cash timing was too optimistic. I’d seen founders underestimate how long customers take to pay and overestimate how fast they can scale operations.
Six months later they hit a cash crunch while “profitable on paper.”
The reality check
Your cash flow statement is the final word. Are you consistently generating more cash than you burn? Is your bank balance going up, not just your net income?
Paper profit is for investors. Cash in the bank is for payroll. Know the difference before your bank account teaches it to you.
Scorecard