Cash Flow vs Profit

Let’s start with the basics.  

Picture a faucet over your kitchen sink.  It’s running, not full force, not a trickle.  

That’s your cash flow.

Your sink also has a drain at the bottom, perhaps a drain catch.  Sometimes that drain catch is completely blocking the water from draining, sometimes it doesn’t black it all, and sometimes it lets a little out at a time.


Let’s say the drain catch is full in, stopping the water from leaving the sink.  


That’s profit.


To fill the sink, two things need to be happening: there needs to be water going in, and there needs to be less water going out.


You have some control over the flow of water into the sink: remember, that’s the money coming into your business; your income.  You have more control over how much water the drain catch is letting out, or the money leaving your business, your expenses.


The drain catch is your cash flow strategy.    


To fill the sink, you need more water going in than draining out.  Simple.  


To fill the sink faster, you either turn up the faucet or stop the drain.  


It’s a classic analogy, true, but it’s a classic because it works.  

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