• Luke Loescher

Why cash flow can be more important than profit

Businesses are in business for profit, for the most part. It’s easy to track success, and without sales or profits, it would be impossible to stay afloat.


However, just generating a profit is not enough-businesses need to first align the timing of their cash used with the timing of their cash received if they want to last.


There are three reasons why you may want to focus more on steady cash flow and less on your bottom line:

  1. Tracking your cash flow can help highlight operational issues

  2. Businesses can forecast growth with more accuracy.

  3. Debt becomes less expensive


Tracking your cash flow can help highlight operational issues


Cash flow can signal both operational and sales-related issues. As an example, a quiet month of revenue may just be caused by overdue clients. In the following month, when all unpaid balances are paid in full, it appears as though your cash flow problem has been resolved when in reality it isn't at all because that could happen again next month or with new customers altogether.


These cash flow movements highlight the need to implement payment systems to secure more consistent client payments.


Businesses can forecast growth with more accuracy.


Growth should be the Holy Grail for most businesses, as it can mean the difference between getting by and thriving. Expanding your offerings or investing in different locations are ways to expand a business. When you know how much cash is coming in with out expenses incurred, then you can make better decisions for growing a business.


It’s difficult to make decisions about factors such as staffing, office space, leases, and business structure without a clear understanding of your business's cash flow.


Debt becomes less expensive


You may have a healthy business with great profit margins and wonderful staff but without cash, you might be in some trouble.


The inevitable side effects of debt build up the longer you’re in it: late charges and overdrafts just add to the headache. This can cause cash flow problems, which make it difficult for business owners to see the end goal.


With a steady flow of monitoring though, you can take on more debt as a company and repayment plans are easier to map out; even while being able to spend less than you earn.

Talk to one of our cash flow advisors today for help in implementing cash flow management properly in your business.

Business owner in a cash flow management meeting


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