Why profit is not cash

Read the three answers separately

Operating profit describes the result under the stated accounting basis. Cash flow describes payment timing. An owner distribution requires a separate funding and tax assessment. The pilot calculates project results before financing, income taxes and owner distributions.

Follow the bridge

• Depreciation reduces EBIT without being another cash purchase in that month.
• Equipment purchases use cash when paid and are depreciated over the stated service life.
• Inventory and receivables can absorb cash as balances grow.
• Prepaid fees and later renewals create timing differences between expense and payment.
• Debt principal and owner withdrawals use cash; they are outside this pilot’s operating comparison.

In the pilot, operating cash starts with EBITDA, adds accrued renewal expense, subtracts actual renewal payments, changes in receivables and inventory, and equipment reinvestment. Employer tax accruals are set aside; the model is not a legal remittance calendar.

Pay for the work before judging the return

Each case includes a full paid operating team and a replacement manager. If the owner performs that role, the labor cost has already been counted. Do not subtract it a second time or call the remaining EBIT guaranteed take-home income.

A small arithmetic illustration

Synthetic arithmetic only

Monthly EBITDA of $20,000 less depreciation of $3,000 gives EBIT of $17,000. If replacement equipment costs $1,000, cash before financing, income tax and changes in working capital is $19,000. Those exclusions still need their own schedules. These amounts illustrate the bridge; they are not market observations.

Inspect the full timeline

Trace the Austin Restaurant year-one cash bridge → and its 60-month schedule. Compare like-for-like base planning results → without treating a mature month as twelve months of launch performance.

Build the opening budget → · Read all financial definitions →