What “Cash Is King” really means for business leaders
They say Cash is King and in business finance, its true. Ask most managers what matters most in business finance, and you’ll hear the same answer: profit. After all, it’s the famous “bottom line” that fills reports, drives bonuses, and makes headlines.
But talk to a CFO about what really keeps them awake at night, and the answer is different: cash flow. Because no matter how profitable a company looks on paper, if there isn’t enough cash to pay salaries, suppliers, or the bank, the business is at risk.
That’s why the expression rings so true:
Profit is an opinion. Cash flow is a fact or Cash is KING
This article, the fifth in our series on financial acumen, explains why the two are not the same, how each can mislead when seen alone, and why leaders at all levels need to understand both.
Profit: the opinion
Profit is not fiction, but it is shaped by accounting rules. It shows the difference between revenues and costs over a period of time. Yet those numbers are influenced by timing conventions:
- Depreciation. When a baker buys a new oven, the cash leaves immediately. But in the Profit & Loss Statement, the cost is spread over years.
- Accruals. Revenue can be recognized when goods are shipped or services delivered, even if the customer hasn’t paid yet.
As Klas Mellander explains in his book Apples & Oranges: Everything You Need to Understand Business Finance, this means profit is useful for measuring performance over any given time, but it can be misleading if taken as the full picture.
Cash flow: the fact
Cash flow is simpler. If Cash is King, then cash flow is its court, the network of decisions and transactions that sustain the business behind the scenes. It’s the money actually entering and leaving the company’s bank account:
- Incoming cash: when customers pay invoices.
- Outgoing cash: when suppliers, employees, or lenders are paid.
If more money leaves than enters, cash flow is negative. The company may still show profit on paper, but it could be heading for a liquidity crisis.
As Mellander points out, profit can be debated. Cash flow cannot. You either have the money to pay your bills, or you don’t.
Why Profit Can mislead leaders
Profit can look healthy, yet cash flow tells another story. Three common situations:
1. Growing sales create a working capital squeeze
- Rising sales are good news. But every new order requires upfront spending on materials, production, and delivery.
- If there’s a long gap between those outlays and when customers pay, cash flow comes under strain.
- The faster sales grow, the more cash is tied up, unless you shorten payment terms or maintain a strong cash buffer (or borrow money).
2. Ingredients and packaging piling up
- The bakery pays cash for flour, butter, and even rolls of packaging upfront.
- In the books, none of this counts as cost yet. It sits as “inventory,” showing value still inside the company.
- But until the bread is baked, sold, and customers pay, that cash is tied up. Profit may look fine, but liquidity is squeezed.
3. Buying a new oven
- When the bakery invests in a new oven, the full price is paid on day one, a large cash outflow.
- In the Profit & Loss Statement, though, only part of that price appears each year as depreciation.
- Profit therefore looks steady, while in reality the bakery already spent all the cash upfront. If funds are tight, that investment can cause short-term pain even if it creates value over the long term.
Each of these cases shows why leaders who focus only on profit can be blindsided.
Why "Cash is King" matters beyond finance
Cash flow is not just the CFO’s concern. Every part of the organization has an impact:
- Sales and marketing influence how quickly customers pay and whether upfront deposits can be negotiated.
- Operations determine how much cash is tied up in inventory, and how efficiently resources are used.
- Procurement negotiates payment terms with suppliers, affecting the timing of cash outflows.
Understanding both profit and cash flow gives managers outside finance the ability to make decisions that strengthen, not weaken, the company’s financial position.
How do people really learn the difference?
Understanding profit vs. cash flow in theory is one thing. Feeling the impact is another.
At Celemi, we’ve given millions of participants the chance to run a fictive company in our simulation Celemi Apples & Oranges™.
In this safe, hands-on environment, teams experience what it means to show a healthy profit on paper while running out of cash in reality. The stress is real, but so are the insights. Participants see how every role, not just finance, influences cash. And they leave with a stronger awareness of how their daily decisions affect the company’s financial health.
That’s why our clients use Celemi Apples & Oranges™ to build a cash culture across broad groups of employees , not just managers. Because in today’s environment, cash responsibility belongs to everyone.
Linking back: building financial acumen step by step
This article builds on the journey we’ve been taking together:
- The Merry-Go-Round of Capital - recognizing how money flows through the system.
- More than Apples & Oranges - why business finance simulations build real world Business acumen
- The Value Chain - understanding how activities create value.
- Budget Season - applying the three-category lens (return, waste, investment).
- Today: Cash Flow vs. Profit - understanding survival vs. sustainability.
Together, these concepts help employees build business acumen and think about value creation, timing, and growth. That’s exactly what Klas Mellander envisioned in Apples & Oranges: Everything You Need to Understand Business Finance - giving everyone a way to “see the big picture” and make smarter business decisions.
Want to sharpen your budgeting perspective before tackling cash flow?
Read our companion article: Budget Season: How to Tell Costs from Investments.
Closing thought
Profit is shaped by accounting rules. Cash flow is shaped by reality. Both matter, one for long-term performance, the other for day-to-day survival.
Leaders who understand both perspectives avoid the trap of chasing paper profits while running out of cash. They protect their organizations today while building for tomorrow.
And that’s the essence of financial acumen: seeing the whole picture, not just the numbers on a single line.
Ready to talk?
If this sparked ideas, or if you’d like to explore how your team can build financial acumen through Serious Fun, let’s connect.
Request your copy of Apples & Oranges: Everything You Need to Understand Business Finance
or
Start a conversation with us: https://celemi.com/contact
Let’s make business acumen everyone’s business!
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