Why positive cashflow is important to make a profit

You’re in business to make a profit right? Your aim as a business owner is to make enough sales with a big enough margin that you make a profit. But how does profit differ from cashflow? And why is keeping an eye on our cashflow important?

Profit vs cashflow

Profit is the surplus that’s left from your income once you’ve paid your expenses, supplier bills and tax etc. It's driven by creating a profit margin and generating value from your products and/or services.

Cashflow is the ongoing process of ensuring that the business has the available cash (or ‘liquid’ cash) needed to operate. This provides the money needed to trade, to pay suppliers, to cover wages or to buy raw materials etc.

Why is positive cashflow so important?

Good cashflow management enhances your financial health. A business can generate high revenues and big profits, but still be cashflow poor. If you don’t look after your cashflow then the business may not survive as long as the end of the year. It can have profits at the end of the period but have very little liquid cash to fund its day-to-day operations over the course of that period. So it’s important to keep an eye on your cash numbers, before things go awry.

Good cashflow management is all about being in control of your cash inflows (income you’re generating) and your cash outflows (what you’re spending). To achieve ‘positive cashflow’ you need to proactively work to keep your inflows higher than your outflows.

Struggling with your cashflow?

If you’re struggling to pay your day-to-day bills and keep things going, it’s time to give us a call. We can help you with detailed cashflow reporting and forecasting, so you can keep the business in that ideal positive cashflow position. We’ll also look at key steps for keeping your revenues high, margins profitable and meeting your financial targets.

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