The fundamental goal of any business is to make a profit. As a business owner, that’s one of your key financial aims – to make enough sales, at a big enough margin, to generate profit from your enterprise. But how does profit differ from cashflow? And why is cash king?
How do profit and cashflow differ?
To really understand the difference between generating profit and managing cashflow, we need to look at what both these terms mean. You might think that delving into the accounts is a job for your adviser, but being in control of your profit and cashflow is an invaluable business skill.
Let’s take a look at the differences:
- What is profit? Profit is the money left over after paying all your bills, taxes, and expenses. You make a profit by selling products or services for more than they cost to produce.
- What is cashflow? Cashflow is the movement of money in and out of your business. It’s about making sure you have enough cash available to pay bills, wages, and other costs to keep things running smoothly.
- Why is positive cashflow so important? Ever heard the saying, “Cash is king”? It means that having cash readily available is crucial for any business. Even if you’re making a profit, poor cashflow can cause major problems, like being unable to pay suppliers or staff.
- Managing cashflow wisely is key to keeping a business financially healthy. Without proper attention, a company can quickly run into trouble.
- Profit vs. cashflow – A business can make a lot of money on paper but still struggle if it doesn’t have enough cash on hand to cover daily expenses.
A business might be making a lot of money overall, but still struggle to cover daily expenses if it doesn’t have enough ready cash. Even if profits look good on paper, the business can run into trouble if it doesn’t have enough cash available to pay bills, wages, or other costs throughout the period.
Talk to us about improving your cashflow management
Managing cashflow simply means keeping track of the money coming in (income) and going out (expenses). To stay in a strong financial position, you need to make sure you’re bringing in more money than you’re spending.
As your adviser, we’ll help you set up easy-to-understand reports and forecasts, so you can keep your cashflow healthy. We’ll also work with you on ways to boost your income, maintain good profit margins, and hit your financial goals
Get in touch to talk through your cashflow management
