As a business owner, your ultimate goal is to achieve profitability. This entails generating sufficient sales with healthy profit margins to ensure your enterprise’s success. However, it’s crucial to understand the distinction between profit and cashflow and recognize the significance of cashflow management.
To gain a comprehensive understanding of profit generation and cashflow management, let’s delve into the definitions. While you may rely on your advisor to handle the intricacies of accounting, mastering these concepts is an invaluable skill for effective business control.
Profit: Profit represents the surplus derived from your income after covering expenses, supplier bills, taxes, and more. It is driven by establishing a profit margin and creating value through your products or services.
Cashflow: Cashflow refers to the ongoing process of ensuring that your business has readily available cash to support its operations. It is the lifeline that allows you to trade, pay suppliers, cover wages, purchase raw materials, and meet other financial obligations.
The adage “Cash is king!” holds true even today, as it remains a fundamental principle underlying any successful business model. While achieving year-end profitability is commendable, neglecting cashflow management jeopardizes the long-term survival of your business.
To maintain financial well-being, effective cashflow management is essential. Without a careful focus on your cash numbers, your business can quickly encounter challenges.
A company may generate substantial revenue and significant profits on paper, yet struggle with poor cashflow. In other words, it can end the period with profits but lack sufficient liquid cash to sustain day-to-day operations throughout the period.
Successful cashflow management involves maintaining control over your cash inflows (revenue generation) and outflows (expenditures). To achieve positive cashflow, it is vital to proactively ensure that your inflows consistently exceed your outflows.
As your trusted advisor, we can assist you in establishing detailed cashflow reporting and forecasting systems. These tools enable you to maintain a favorable cashflow position. Additionally, we will guide you in optimizing revenue, maximizing profit margins, and meeting your financial targets.
Contact us today to discuss how we can enhance your cashflow management strategies.
Your Outside Team
Need a bit of assistance with your business? Contact an Outside Accounting team member today and learn more about our fixed fees. You won’t regret it.
Aside from business consultation, we are business accountants Wellington who offer accounting, bookkeeping, payroll services designed to help you achieve greater financial success.
You can click here to speak to a business, accounting and bookkeeping firm. We will give you a call to know more about your needs. We will explain to you how we can improve your business.
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
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