Cash Flow is not Net Profit and vice versa
The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow.
Net profit is what you have left after you deduct all your business expenses from all your revenue.
.You change net profit only by changing the things that affect revenue and expenses.
For example, if:
- You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
- Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
- You can roster staff differently, you may be able to run your business more efficiently.
Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.
A profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.
To work out how fast you can grow your business, you need to look at your projected cashflow.
The following six takeaways are essential for business success:
- Protect your cash position, by knowing what it is. Build a cashflow forecast and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
- Create a cash buffer as an insurance against unexpected difficulties.
- Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
- Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
- Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
- Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a Cash budget for the spend you know you need, and stick to it.
If you want to Maximize your Profits and get Cash Flow under control, come and have a chat with CFO Coach today.
We will map out your unique roadmap and help you look for the opportunities to push for a sustainable profit margin on your products.
Get in touch with me to learn more by SMS on +260967924720 or email to Irfan.Sayed@cfocoach.co.zm or Visit www.cfocoach.co.zm
Alternatively you can choose your preferred date to set up a free 15 minute Power Discovery Call at your convenience by clicking the link – CFO Coach.
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