Cash flow is one of the keys to successfully managing a business, but you shouldn’t mistake it for profitability. A highly profitable company can also be highly dysfunctional due to a cash cycle that gives it seasons of downtime while waiting for invoice payment. It’s uncommon, but in theory it is possible. More common is a business with good flow but marginal profitability. It’s even possible for companies with a strong asset and savings base to be unprofitable for a period of months or years while maintaining good payment rhythms. Typically, management would intervene rather than let that continue, but the example is still good.

The two terms are linked though. Companies that have poor cash flow management do not tend to reach their full profit potential even if they are profitable, and frequently their bad cash management habits lead to decreasing profitability until they are losing money or change habits. Similarly, companies that have cash management problems and fix them while they are still profitable tend to notice a more stable growth and better long-term profitability.

The difference is very simple, but sometimes subtle. Profitability describes whether a business produces more money than it costs to operate. If not, it loses money. Regardless of whether the profits are reinvested in growth or taken as dividends, the same amount of profit is earned through its operation, so the determining factor is not where the money goes but how much of it comes in and how much had to be invested to make it.

Cash flow is considerably different. That describes the movement of money through the business. You can determine flow by seeing not only how much comes in and goes out, but when the payments arrive and leave. The key to being successful with cash management is not necessarily having a lot of cash, it’s timing the payments going out well, so that you have payments going out at times that won’t deplete your cash reserves or wind up making you late because of a lack of available funds.

The best way to get good at managing the flow of your money is by putting resources into place that allow you to tap credit when you don’t have cash on hand without requiring you to take out long-term loans that take weeks or months to get approval. There are a lot of products available, from business credit lines to asset financing. Finding the right credit tools is often the difference between growth and stagnation, so do your research and put your system in place before your operation grows enough to have cash flow issues.