Profit is not Cash (and you need both)
Diana Miret
Christian Fractional CFO and Financial Strategist for $1M-$10M Businesses | Speaker | I provide financial counsel to service-based businesses to increase profitability, cash flow, and heighten financial confidence.
You can have profit without cash (you invoiced the customer -booked a sale- but they haven't paid yet) or you can have no cash with profit (invoice is collected but you bought inventory, COGS is growing and vendors need to be paid).
Cash based businesses can have a skewed picture of their business - "am I really profitable, like the bank says I am or have I just not run payroll and paid the rent yet and my cash will be gone shortly?"
It's about timing. Regardless of what the P/L says, it comes down to timing.
Not to mention, there are expenses that do not show up on the P/L but reduce cash: inventory, loan payments, and owner distributions are the main ones.
What are we to do?
Learn to read the Statement of Cash Flows report. This report is the most overlooked and undervalued report available and yet it is the clearest picture of a company's cash growth and WHY it has grown or diminished. It show EXACTLY what brought in cash and what took cash away.
Or hire a fractional CFO to explain the ins and outs of this report and help you forecast cash coming into the business accurately.
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My name is Diana Miret. As a fractional CFO, I provide financial counsel to mostly women owned businesses earning between $1M and $10M to increase profitability, optimize cash flow management and heighten financial confidence and clarity. You can find me at www.dianamiret.com
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8 个月Understanding cash flow is key! ?? It's such an important aspect of business. What's been your biggest learning about managing cash flow in your own business?
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