When you go into business you aim to make money, and that means knowing the difference between profit and cashflow.

Your net profit is the amount you have left after you deduct all your business expenses from all of your revenue. You can change your net profit by changing the things that affect your revenue and expenses.

 

Examples for changing your net profit;

  • Renegotiating with your supplier, this may allow you to get stock cheaper, or carry less inventory
  • Your staff engaging with you customers better, you can learn more about what your customers do and don’t like and get more business
  • By rostering staff differently, you may be able to run your business more efficiently.

Your cash flow can come from various sources. It is used to cover your operating expenses, taxes, equipment purchases, repayments, distributions and so on.

It is important to note a profitable business does not always have a good cash flow. And businesses with good cash flow are not always profitable. For example, you can have good cash flow, and loss-making expenses.

To figure out how fast you can grow your business, you need to look at your projected cash flow. We can assist you with this.

 

Why is cash King

Your business will not be able to survive without cash.

Below are six takeaways that are essential for business success:

  1. Protect your cash position, by knowing what it is. Develop a cashflow statement and keep it up to date. If you foresee a shortfall, see what you can do to fix it.
  2. Create a cash buffer as insurance against unexpected difficulties or costs
  3. Protect your cash position against revenue shocks, by maintaining a balance equal to at least two months of operating expenses.
  4. Be realistic with your revenue expectations. If it looks like your sales are not going to get you to breakeven, take action to ensure your are covered
  5. Credit checking up front will reduce the risk of customers from not making their payments. Make sure you follow up with clear payment terms, agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every dollar you spend will reduce your cash reserve. The best way to protect your cash is to create a budget for the spend you know you need and stick to it.

Do you need help improving your cashflow? Make a time to talk with us, we are here to help.