Cashflow and profit are crucial financial metrics for any business, but they represent different aspects of a company’s financial performance. Understanding the distinction between the two and recognising how cash and profit contribute to your business’s overall financial health is vital.


Differentiating Cashflow and Profit:


Grasping the intricacies of financial reporting can be overwhelming, especially for new entrepreneurs. Even seasoned business owners may struggle to connect with the various financial reports generated by modern cloud accounting software. However, comprehending the differences between cashflow and profit can be a gamechanger, particularly when it comes to managing your working capital.


Let’s delve into the disparities:


– Profit: It denotes the amount of money your business retains after deducting all expenses from your revenue. Profit measures your company’s financial success over a specific period, whether it’s a month, quarter, or a full year.

– Cashflow: It measures the inflow and outflow of cash in your business, encompassing both operational and investment activities. Maintaining a positive cashflow position is crucial for meeting your financial obligations.


The Importance of Making a Profit:


Profit serves as a gauge of your business’s financial success and plays a pivotal role in your growth as an organisation. Healthy profits provide the surplus cash necessary for reinvesting in the business, as well as paying yourself and fellow shareholders substantial dividends. However, you can only achieve a profit if you have enough liquid cash to sustain your operations, highlighting the paramount significance of cashflow.


The Significance of Positive Cashflow:


Poor cashflow stands as a major factor contributing to many business failures. Cash, as the lifeblood of a company, is an essential component of the financial equation. To operate effectively, you need more cash inflows than outflows. Otherwise, you lack the funds to purchase raw materials, compensate your workforce, or acquire necessary services to keep your operations running smoothly.


Positive cashflow ensures that there is more cash entering the business than expenses going out. Being in a positive cashflow position means having liquid cash available precisely when needed, which is crucial for sustaining your business’s operations.


Consult Us to Gain Control of Your Cashflow:


While profit is an excellent measure of financial success, positive cashflow acts as the electricity powering your business and keeping the wheels turning consistently. Positive cashflow helps you:


– Maintain operational continuity by having sufficient cash reserves.
– Fulfill your financial obligations as a company.
– Invest in expansion, growth, and scaling strategies.
– Ensure long-term success as an ambitious business.


Even a profitable business can encounter liquidity issues, underscoring the importance of taking control of your cashflow. Prioritizing cashflow management should be at the top of your financial to-do list this year.


Feel free to reach out to discuss your cashflow position and explore strategies for achieving better control.

 

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 accountingbookkeeping, payroll services designed to
help you achieve greater financial success.

You can click here to speak to a businessaccounting 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.



Contact 

Wellington Accountants | 

Business Accountants | 

Construction Accountants 

Property Accountants 

Contractor Accountants 

Hospitality Accountants |

Property Developer Accountants | Accountants Wellington | Wellington Accountant | Business Consultation | Business Adviser

 
 

AddressLevel 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand 

Mail: PO Box 24-457, Wellington 6142

Phone04 889 2975

New Zealand Accounting, Bookkeeping & Property Business Consultancy Services | Wellington & Lower Hutt Xero Property Accountants Business coach business consultation business adviser

Business Accountants: Exploring Business Structures: How to Choose the Right One for Your Venture

Embarking on the journey of entrepreneurship is exhilarating, but establishing the right business structure can be a daunting task. Whether you’re a solo entrepreneur or part of a larger team, understanding the different business structures and making the right choice is crucial for your long-term success. This guide aims to demystify the process and help you navigate the intricate world of business entities.

Read More »
New Zealand Accounting, Bookkeeping & Property Business Consultancy Services | Wellington & Lower Hutt Xero Property Accountants Business coach business consultation business adviser

Business Accountants: Optimising Your Business for Recession Resilience: Strategies for 2024

In the face of economic challenges, understanding how to recession-proof your business becomes paramount. A recession, marked by prolonged weak or negative growth in real GDP and heightened unemployment, demands strategic planning to weather the storm and emerge stronger on the other side. To fortify your business for the uncertainties ahead, consider the following comprehensive guide.

Read More »