Profit is sales minus the cost of earning them; cash is the money you actually have. A shop can show a profit and still run out of cash when customers buy on credit, money is tied up in stock, loan principal is repaid or the owner takes drawings — none of which appear as expenses in the profit and loss.
Use the free EMI calculator to see what a loan really costs each month, or try KhataIN Business to track receivables, stock and cash in one place.
What is the difference between profit and cash?
Your profit and loss statement records a sale when you make it and an expense when you incur it, whether or not money has changed hands. Your cash only moves when a customer pays you or you pay someone.
Why can a profitable business have no cash?
- Credit sales. A sale on credit (udharo) counts as income today, but the cash arrives only when the customer pays. Until then it sits in receivables.
- Buying stock ahead of sales. Stock you buy but haven't sold is not an expense yet — it is an asset on the balance sheet. Stocking up before Dashain or Tihar can use up months of cash.
- Loan repayments. Only the interest part of an EMI is an expense. The principal part reduces the loan, so it uses cash without lowering profit.
- Owner drawings. Money the owner takes for personal use is drawings, not an expense. Profit stays the same; cash goes down.
A worked example
A grocery shop's month before Dashain:
| Item | Profit and loss | Cash |
|---|---|---|
| Sales (Rs 2,50,000 of it on credit) | Rs 6,00,000 | Rs 3,50,000 |
| Old credit collected from customers | — | Rs 50,000 |
| Cost of goods sold | − Rs 4,20,000 | — |
| Stock purchases paid | — | − Rs 5,00,000 |
| Rent, salaries, electricity, loan interest | − Rs 80,000 | − Rs 80,000 |
| Loan principal repaid | — | − Rs 30,000 |
| Owner drawings | — | − Rs 50,000 |
| Result | Profit Rs 1,00,000 | Cash down Rs 2,60,000 |
The shop earned Rs 1,00,000 but has Rs 2,60,000 less cash than a month ago.
Nothing here is a loss. The money is sitting with customers, on the shelves and in a smaller loan. But the supplier's bill due next week still has to be paid in cash.
How do you watch cash every week?
Set aside 20 minutes on the same day each week:
- Count today's cash and bank balance. Use the real figures from the drawer and the bank or wallet app.
- List what will come in over the next four weeks — customer dues you expect to collect, with names and dates.
- List what must go out — supplier bills by due date, salaries, rent, EMIs, VAT and TDS payments, planned drawings.
- Find the lowest week. If cash dips below zero in any week, act now: chase the oldest receivables, delay a stock order, or agree a later date with a supplier.
Separate business and personal money so this list is honest — see bookkeeping for small businesses in Nepal.
How can you improve cash flow without cutting profit?
- Collect faster. Agree payment terms up front, send reminders before the due date, and limit credit for customers who pay late.
- Hold less stock. Reorder fast-moving items more often in smaller lots; clear slow movers. See inventory and cost of goods sold.
- Fix drawings. Take a set monthly amount instead of dipping into the till.
KhataIN Business includes a cash outlook that projects the next 13 weeks of cash from the books' own records — what customers owe and what you owe suppliers — alongside receivables and payables reports.
Frequently asked questions
Is cash flow more important than profit?
Both matter. Profit tells you whether the business is worth running; cash tells you whether it can pay this month's bills. Many businesses that close were profitable on paper but ran out of cash.
Why isn't loan repayment shown as an expense?
Only the interest on a loan is an expense. The principal is repayment of money you borrowed, so it reduces the loan balance on the balance sheet instead of reducing profit — but it still takes cash out of the business.
How often should a small shop check its cash?
Weekly is a good rhythm for most small businesses, with a quick daily count of the drawer. Busy seasons such as Dashain and Tihar, when stock purchases rise, are when a weekly four-week cash forecast helps most.