Vinu: Manu, my business shows a profit of ₹12 lakh, but I’m constantly short of cash. How is that possible?

Manu: This is one of the most common entrepreneur problems, Vinu. Profit is accounting-based, cash is reality-based. They rarely move together.

Vinu: Can you simplify that?

Manu: Sure. Profit is recorded when a sale happens. Cash is recorded only when money is actually received. If you sell ₹30 lakh on credit, profit increases—but cash doesn’t.

Vinu: So receivables are the main issue?

Manu: One major issue. If debtors increase from ₹10 lakh to ₹25 lakh, ₹15 lakh of your profit is stuck with customers.

Vinu: What about inventory?

Manu: Same story. Buying extra stock blocks cash. Inventory rising from ₹20 lakh to ₹35 lakh means ₹15 lakh of cash is locked on shelves.

Vinu: Expenses are already booked in profit, right?

Manu: Not always. Loan EMI principal, asset purchases of ₹10 lakh, or owner drawings don’t affect profit—but they drain cash.

Vinu: Then why do banks focus on cash flow statements?

Manu: Because cash flow shows whether your business can survive. A company can report ₹12 lakh profit and still default if cash flow is negative.

Vinu: What’s the quick way for entrepreneurs to check this?

Manu: Compare Net Profit vs Cash from Operations.

Vinu: How do I fix this gap?

Manu: Tighten credit periods, reduce slow-moving stock, align EMIs with cash cycles, and review cash flow monthly.

Vinu: Final takeaway?

Manu: Profit shows success on paper. Cash decides whether your business lives or shuts down.

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