Profit vs Cashflow: What Matters Most?

Profit vs Cashflow: What Matters Most?

If you are in business, making a profit is your primary objective. While you may have other motives such as gaining financial independence, choosing who you work with and selecting customers you are going to serve, running a business that produces profits makes a great difference. 

Making Decent Profits

Profits are essential to investing in your business. Expansion and investments will remain a dream if your business is not making a profit. It can be a challenge to maintain a profitable business, but if you want to keep the ball rolling, you need to stay ahead of the game. 

Profits provide you money to purchase assets and repay debts. A savvy business owner knows that you need maintain a steady profit to stay in business. This means hitting the minimum target on a monthly basis. Although profits are achievable, some businesses still struggle because of not pricing products correctly. You are on the right track if you are making sales and covering your expenses at the same time. 

Making decent profits is a sign that your business will last, but cash is also essential. The profits you make do not guarantee a steady flow of income because when there is income, there are also expenses you need to monitor. Cash flow movements are influenced by the payment of expenses, repayments of debt, collection of sales and many more. A cash flow crisis indicates that you are in trouble. Without a steady flow of cash, you will find it difficult to pay suppliers, employees and monthly bills. Meeting your financial obligations will become a challenge for you. If you no longer have cash, it will be impossible for you to stay in business. 

Maintaining Cash Flow

A healthy cash flow means you are able to pay your regular expenses and still have enough bank account balance for expansion. 

More often than not, a gap between receiving your revenue and paying your expenses can be financed by borrowing money from the bank. Considering the fees and interests in borrowing money, this option is expensive and can consume your profits. Business owners who are concerned about their cash flow will see to it that suppliers are paid in a timely manner. A good payment history will save you in difficult times. You can also negotiate payment arrangements and make sure you are true to your promise. 

Profits and cash flow are equally important. At the end of the day, you can go out of business if you do not properly handle your finances. A profitable business with a healthy cash flow can definitely stand the test of time.

Tamara Deterding

Written by : Tamara Deterding