What the hell is a Cash Flow? For People Who Couldn’t Care Less About Finance (In 3 minutes)

The one management cares about

To understand businesses, you need to understand financial statements — even if you couldn’t care less about finance.

You might’ve heard of the P&L and the Balance Sheet.

Most people forget the Cash Flow Statement.

But, if you run a business and want to avoid going bankrupt, the Cash Flow is your friend.

And, it’s really straightforward.

Here’s everything you need to know about the Cash Flow — in 3 minutes.

Profit vs cash

Over here, we covered how the P&L shows how much your business (like renting out your flat on Airbnb) earns in a period.

Let’s say guests pay $1,000 one month to stay in your flat and when you’ve taken off all your costs, you’re left with a profit of $200.

That’s all in the P&L.

But.

Profit is not the same as cash.

A profit of $200 does not mean you have $200 in the bank. You may have less. You may have more.