Keeping your business cash liquid – the difference between cash flow and profit
The Finlay-Mulligan & Co Accountants team know that the foundational goal of any business is to make a profit. As a business owner, that’s one of your key financial aims – to make enough sales, at a big enough margin, to generate profit from your enterprise. But how does profit differ from cash flow? And why is cash king?
How do profit and cash flow differ?
To really understand the difference between generating a profit and managing cash flow, we need to look at what both these terms mean. You might think that delving into the accounts is a job for your adviser, but being in control of your profit and cash flow is an invaluable business skill.
Let’s take a look at the key differences from the Finlay-Mulligan & Co Accountants team:
- What is profit? – Profit is the surplus that’s left from your income once you’ve paid your expenses, supplier bills, tax etc. It’s driven by creating a profit margin and generating value from your products and/or services.
- What is cash flow? – 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.
What’s needed is good cash flow management to enhance your financial health. And without a careful eye on your cash numbers, things can quickly go awry.
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