Question

is your cash flow positive each month?

Answer 1

Answer:

Hohohohohoho nononono

Answer 2

Explanation:

Here’s how to see if you’re cash flow-positive:

Your cash flow is the money coming in and out of your business on any given day. This working capital is what you use to cover your business expenses, such as payroll, rent, inventory purchases, and so on. Simple, right?

Your profit, on the other hand, is really only an accounting term that exists on paper. This measurement gives you a basic idea of how much money you have coming in and going out of your business each month, but what it doesn’t do is tell you much about your day-to-day operations.

Keep in mind that many businesses use accrual accounting, which means your revenue and expenses are recorded, regardless of whether or not cash has been exchanged.

For example, let’s say you send out an invoice for $1,000. This $1,000 will be recorded on your profit and loss statement as a profit—even if you don’t receive payment for said invoice right away.

This difference is key when your bills come up as due. If you’re still waiting for payment on that invoice, you may not have enough cash on hand to cover the costs, and not having the cash makes you cash flow-negative. However, since profit doesn’t tell you exactly when money is coming in and going out of your business, you will still appear profitable on paper, even if that isn’t in the bank for you to use.