In today’s article, we talk about one of the biggest misconceptions observable from business owners:
Profit and cash flow are NOT the same thing.
You might look at your profit and loss statement, see a nice six-figure profit, and think, “Great! My business is thriving!” But when you check your bank account, it’s a different story.
Where did all the cash go?
If this sounds familiar, you’re not alone—and here’s why it matters, especially as tax time approaches.
Profit vs. Cash Flow: What’s the Difference?
Profit is what’s left after subtracting your expenses from your revenue-following accounting principles eg Revenue recognition, depreciation etcif you prepare your accounts on accrual basis
It’s what shows up on your income statement and what CRA looks at for taxes.
Cash Flow is the actual movement of money in and out of your business.
It’s your day-to-day financial lifeline—covering payroll, rent, and operating costs.
In short: Profit is a number on paper; cash flow is what you can spend.
Why Does This Matter at Tax Time?
You pay taxes on profit, not cash flow.
So, even if you don’t have much money in the bank, you could still owe a hefty tax bill.
For example:
Maybe you’ve reinvested heavily in equipment or inventory.
Or you have customers with outstanding invoices who haven’t paid you yet (accounts receivable still counts as revenue in most cases).
The Tax-Time Struggles of Ignoring Cash Flow
- Surprise Tax Bills: Without careful planning, your “paper profit” could leave you owing taxes with no cash to cover the bill.
- Missed Deductions: Poorly managed books can lead to missed deductions for expenses or write-offs.
- Audit Risk: Cash flow mismatches can raise red flags with CRA if your filings don’t align with reality.
How to Stay Ahead of the Game
- Track Your Cash Flow Weekly: Know what’s coming in and going out at all times or use accounting software like Quickbooks to automate this process
- Plan for Taxes: Set aside a portion of your revenue (not just profit) to cover tax liabilities.
- Use a Professional: Partnering with a seasoned bookkeeper ensures your financials are accurate, deductions are maximized, and tax surprises are minimized.
Here’s the Bottom Line:
A profitable business isn’t always a healthy business- A hard pill to swallow
To thrive—and sleep better at night—you need both solid profits and positive cash flow.
If you’re not sure where your cash is going or how to prepare for tax season, let’s chat. I’ve helped businesses like yours turn these numbers into clarity, confidence, and compliance.
Drop a comment, book a call, or DM me, and let’s make sure your books and your bank account tell the same story
