Cashflow or Profit? What should a business owner's focus be?

Caroline McDonald on May 10, 2021 2:04:58 PM

When starting a business, profits are seen to be the benchmark as to the success of a company. But should a business owner also be looking at other financial aspects to help them create and sustain a business with longevity?

Cash is king and it is vital to keep a steady and constant flow of cash into your company. Without cash you can’t cover your overheads, pay employees, or generally run your day to day operations. And if cash isn’t available you certainly will struggle to even think about expanding and growing your business.

Keeping abreast of the finances of your business is a hard task, especially so if you are not familiar with accounting jargon and technical terms.

To keep control of your finances it is vital that you understand cashflow management. Knowing where your business stands in terms of cash in and out is essential especially in the current economic landscape.

Here are a few of the key areas you need to understand to help you with your finances:

 

  • Consistent Revenues – of course you want to make a profit, but profitability doesn’t automatically make a mean you have a stable and longer-term business. Profitability shouldn’t be your only focus, what you should and want to achieve are consistent and stable revenue streams.
  • Know and understand your overheads and costs – As a business owner it is vital you know what cash is coming in and the cash which is flowing out. It’s important to know and manage your costs and expenses carefully.
  • Cash is King! – It may be an old phrase, but it is true. Income brings cash into the business. Without that revenue to cover operating costs you simply will not be able to function.
  • Increase Revenue – it may be obvious but generating more sales will increase your revenue and consequently your cashflow. It’s important to be thinking and implementing new sales and marketing campaigns which can help improve your sales.
  • Review your expenditure – taking time to review the company’s expenditure and looking for ways to reduce your spend with naturally have a positive impact on your cashflow. Look to renegotiate deals, review pricing, and look at alternative suppliers. You can check out How to minimise late payments and the resulting cashflow challenge for SMEs (just-cashflow.com) to help you reduce cashflow issues.

 Being a business owner means you must wear several hats including accounting, HR, marketing, analyst, strategist, the list is endless. But cashflow is the lifeblood to every business, as without it you simply won’t have a business to run.

Taking the time to know and understand the above points will help you deliver a sustainable, long term and successful business.

 

 

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