Cash is King

Cash is King

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 can roster staff differently, you may be able to run your business more efficiently.
• 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

Cashflow 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 good cashflow, 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.

Keeping cash crowned as King

Your business can’t survive without cash.

The following takeaways are essential for business success:

1. Be realistic with revenue expectations.
2. If you foresee a shortfall, start at once to fix it.
3. Every dollar you spend reduces cash reserves.
4. Protect your cash position, by knowing what it is.
5. Build a cashflow statement and always keep it up-to-date.
6. Create a cash buffer as an insurance against unexpected difficulties.
7. Make sure you follow up with clear payment terms agreed in writing.
8. Communicate regularly with customers and automate where possible.
9. Credit checking up front will reduce the risk of customer non-payment.
10. Take action now if it looks like sales are not going to get you to breakeven.
11. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.
12. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.

Looking to improve cashflow? Make a time to talk to us. We are here to help.

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Oracle Accounting & Wealth is located at
Suite 31, 89-97 Jones Street ULTIMO NSW 2007. Phone: 02-9715 2977
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Disclaimer 
The information in this newsletter / factsheet / blog is factual but general in nature. It should not and is not to be construed as advice at any level whatsoever. Because it contains general information that has not been tailored to your personal circumstances it may not be suitable information for you. You must always seek personal financial or taxation advice prior to acting on this information. Further, as many of the comments in this newsletter / factsheet are general in nature, anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.