Cash Flow and Investment
The problem is that revenue rarely comes in before a business needs to pay its expenses, so most startups are cash-flow negative at the beginning. To bridge the gap, business owners either seek investment capital or a loan.
The decision to choose capital or loan will determine how soon the business becomes profitable. Why? Loan repayments are considered business expenses and must be factored as a cost, which may negate or decrease profit. On the other hand, a business is not expected to post returns on investment capital until it is profitable.
Many business owners who invest their own capital into their business end up reinvesting the profits to help it grow.
Generally speaking, a profitable, cash-flow positive business is a healthy one. It makes money for the owner but it can also service its expenses on time, reducing financial threats. Understanding the difference between revenue and profit will help business owners realise that good sales are not enough to sustain a business, but good accounting can help you get there.