The management of cash and cash flow is important as it can prevent a business from failing. Cash flow is the way that money moves in and out of a business and its bank accounts.
Not all cash paid into a business is profit. A business must pay its costs from the money that comes into it. Once all costs have been deducted from all revenue, the amount that is left is the business’ profit.
Profit is usually calculated on an annual basis. However, calculating it monthly can help a business by showing that it is solvent and indicating whether it will be able to achieve its profit targets.