This is Part 1 of a two-part series examining the difference between earnings shown on the income statement, and actual cash flow generated from the total business operation during the accounting period.
Yes, there is a difference between your business cash flow and earnings (EBITDA, or net income). The difference typically arises when a business buys or sells on credit, and the financial statements are presented on an accrual basis (rather than a cash basis). Growing businesses that sell their goods or services on a credit (receivables) basis, and buy their materials on a payables basis, will likely see a larger difference between its cash flow and earnings. Why? Because increasing revenues and positive earnings do not necessarily translate to an increase in cash.