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A small business may be profitable but still not have the cash needed to pay employees, vendors, or creditors.

Profit refers to the difference between revenue and cost over a period of time, whereas cash flow measures your cash on hand. The cash flow statement helps you look back over a specific period (typically a quarter) to predict the net cash, or amount of cash, you will need over a specific accounting period to fund your operating activities.Ĭash flow should not be confused with profit. In financial accounting, a cash flow statement provides a snapshot of your cash balance. The cash flow statement-also known as a statement of cash flows-helps you evaluate whether there is enough money coming in, and enough cash on hand, to pay your bills. In most small businesses, revenue doesn’t always match up with spending, so understanding your cash flow is critical.