Cash flow is more important
Why Cash Flow is More Important than Profit
Cash flow is the lifeblood of any business
The goal of all business owners should be to have more cash. Cash is used to finance your salary, cover your overhead, pay your suppliers and purchase equipment.
Without a healthy and constant cash flow, your business will not survive. If you run out of money, then it’s time to pack.
Your profit is what remains after you have paid all your expenses, and this is what your tax is calculated on. This may seem strange, but there were enterprises that went bankrupt, still reporting a profit, and that was because their cash flow was insufficient. Therefore, it is important to focus on making healthy profits and the fact is that it is your cash flow that supports your business.
Cash is King!
You have heard a lot about this, and there is a reason: without this, a business cannot grow, provide financing or attract investors. This is because the cash flow statement is an actual statement of what the company has, while the profit can be displayed on paper, but does not reflect how much cash is actually in the business to help it grow.
A healthy cash flow also means that your business is protected if you have problems repaying your loan or if your sales do not meet your expectations. This means that your business can still work while you are solving these problems:
• The more cash you have, and the closer your assets to cash, the more liquid your business will be. This is important if you are trying to get financing, especially when your business is in a growth phase.
• Strong cash flow means you will have more room for growth.
• If you have a healthy cash flow, it means that you understand your business and it’s systematic
• Business owners should make cash flow their top priority.
The bottom line is that although profit helps your business achieve its financial goals, having a strong cash flow means that you get what you need, not only to continue working, but also to reinvest funds in business development.
The long-term goal of most successful business owners is to maximize profits.
Good profit means that you:
• Have more control over your resources – you can determine how to use them more efficiently
• Have a marketing strategy that works and ensures stable sales
• The more you earn, the more you can pay
In no case should you ignore the situation with profit or completely shift the emphasis on cash flow. The trick is to balance that.
Improving your cash flow
One of the best ways is to shorten money cycles – in other words, you are reducing the time that your business goes without money:
• Make sure you get paid quickly! Provide mobile and online options
• If you need to bill, provide incentives for customers to pay early, such as a discount
View costs and find efficiency
• Costs are often slow but increase over time
• You need to regularly check your budget with actual costs.
• Make the most of technology when it comes to optimizing your business processes.
• Companies around the world reduce travel if meetings can be held via a free Skype call