When you own a small business, you wear lots of hats. Not only are you focused on your particular product or service, but you need to have a good understanding of accounting, finance, law and more. One area we see confusion among our clients is the difference between cash flow and net income.
The definition of cash flow as provided by businessdictionary.com is:
The definition of net income on the same site is: the total revenue in an accounting period minus all expenses during the same period. If incomed taxes and interest are not deducted, it is called operating profit (or loss, as the case may be).
A good way to think about this is cash flow is how much money is in and out of the bank account, where net income is how much you will pay taxes on (because some items do not affect cash flow). This distinction is important because when you don’t understand the difference between cash in the bank and taxable income it can be difficult to make good business decisions. For example, if you don’t have enough money, you may need a loan for your business; or, if you need to lower your taxable income, you may need to determine the best way to accomplish this without draining the business bank account.
Use our knowledge and experience to benefit your business! We can provide education and a little coaching to help you understand your business finances and identify the best ways to learn to manage your small business. We are available to assist with accounting work, or to do your business accounting. We can make suggestions to improve cash flow or lower taxable income. And, we can provide guidance to help you make financial decisions that will benefit you and your employees.
Call us at (913) 888-9100 to set up a meeting right away. We will help you tie up loose ends before the end of the year to make your 2015 tax preparation much easier. This will also put you in a position to start 2016 off on the right foot! We look forward to working with you!
