Get Advice

Our OfficesSussex : 01273 437 027Kent : 01580 766 403North East : 07436 581 676

Call Us

Close

Quick Contact Form

Leave your name, number and email below and we will get in touch with you shortly.
  • This field is for validation purposes and should be left unchanged.

Contact

Close

Get Advice Now

Why Cash-flow Outranks Profit in Business

Kent based Business Advisor Glyn Moore recognises the primacy of positive cash flow and firmly believes that it is vital for business survival and growth.

A good sales creed is “give me cash not credit”. It is also the tune that successful businesses sing. It does not matter if your gross margins make your competitors green with envy if you don’t get paid in time to keep your creditors off your back. By putting in place simple systems, many businesses can move from “just surviving” to “really thriving”.

Just because you’re making great gross profit doesn’t mean that you are putting lots of it into your pocket. Nor do great levels of gross profit mean you’re doing well. In fact it could mean that you’re going to go bust sooner than you thought! There are many examples of businesses that sold so much so fast that they couldn’t pay their monthly bills. Primarily because they weren’t paid quickly enough from their customers, but now have to pay more bills from suppliers to cover their newly increased sales.

To some this will sound obvious, to others it will come as a surprise. However, to Glyn the only surprise is how many business owners don’t actually plan for their cash flow throughout the year. Often they don’t have a basic cash flow forecast, let alone the ability to model potential changes in their businesses. For example, can you model the effect on your cash flow as a result of:

  • A change in your turnover (even a slight one)
  • An increase in your prices
  • A decrease in your prices
  • A change in inventory levels
  • Taking on a new salesperson or any new employee. Or indeed letting one go.
  • A change in your receivables or your payables (how quickly you get paid from your customers or pay your suppliers).
  • Reducing your overheads
  • Increasing your borrowings

Do you just carry out changes and assume/hope that they will be beneficial? Do you just try and increase your sales and assume/hope that this will be good for business? Whilst it normally is good for business, surprisingly, and sadly, often it isn’t. It can cause a myriad of problems such as more work, increased overheads, cash flow problems, operational or production issues.

Glyn concludes “It is always better to model the changes before you carry them out to see what the impact will be on your business and, indeed, your life. The unfortunate fact is that cliches are sometimes correct. Turnover is vanity, profit is sanity, cash flow is reality.”

Posted on:
Responsive website designed & developed by

Join the Mailing List

Please join the mailing list to see the premium content.

Email

A password will be e-mailed to you.

Already on the mailing list?