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Forget profits. Let’s talk about CASH FLOW!

Updated: Mar 13, 2023

One of the biggest mistakes companies make is focusing too much on profits and not enough on cash flow. A Profit & Loss statement provides great data, but relying on the bottom line to gauge financial health in your organization is shortsighted and risky. Here’s why:

1) Tomorrow’s income won’t pay today’s bills. Your P&L may show a profitable month, but if your profits are held in Accounts Receivable, you may still be short on cash to pay your expenses. What happens when your next “big project” cancels or doesn’t pay on time? Or a shutdown closes your business’s doors for 6 weeks? Will you have the fluid cash reserves necessary to get your company through, and if so, for how long? Cash flow management ensures that you are on top of your AR, that you know your runway, and that you can easily and accurately predict the outcome of unexpected changes to your income.

2) Today’s income may be insufficient for upcoming periodic expenses, such as taxes, equipment purchases, annual bonuses, etc. Your P&L is merely a snapshot of last month, it’s not a road map for what’s ahead. Unfortunately, it is not at all uncommon for businesses to reach the end of the year and realize they are under-resourced for a $500,000 tax bill. Being attentive to your cash flow allow you to see exactly how these periodic big expenses will impact your cash, and will put the money in the bank before you need it.

3) Without attention to future cash flow, every financial decision you make is blind. Many business owners make important choices about when and how much to spend based on today’s bank balance. This, more than anything, is why cash flow problems are the second-largest business killer. For example, how many times have you been advised by an accountant, CPA, or business colleague to spend more at the end of the year to save on taxes? While this can be helpful if all goes well, what if an unexpected income dip at the beginning of next year leaves you without the cash reserves to pay existing bills and payroll? Or what if the new truck you purchased during your peak season is a total financial drain once you hit that anticipated seasonal decline? You simply cannot know the implications of large financial moves if you have not looked far enough into the future to see how they impact your cash balance.

Stop relying on insufficient data to steer your company into the future. If you’re a business making more than $500K per year in revenue, it is critical that you have a cash flow advisor who is intimately familiar with your numbers, your goals, and your overall financial landscape.



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