Cashflow is not profit – and vice versa
The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow.
Net profit is what you have left after you deduct all your business expenses from all your revenue. You change net profit only by changing the things that affect revenue and expenses. For example, if:
- You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
- Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
- You can roster staff differently, you may be able to run your business more efficiently.
The money flow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.
Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have a good flow of money, and loss-making expenses.
To work out how fast you can grow your business, you need to look at your projected cashflow. We can advise you on this.