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Is Cashflow more important than Profit?

Author: Henry Ejdelbaum

Tags: business, small business, SME

Posed like this it is clearly a silly question, because any business needs good cashflow and good profit. But they don’t come at the same time. Cashflow comes first and will always be the first focus for every business. It doesn’t matter how successful your pipeline is looking, or indeed how much profit you made last year. If you have a cashflow issue it can bring your business to a halt.

Remember the old adage, “turnover is vanity, profit is sanity, cash is reality’? It’s lasted the test of time because it brings the realities of not only doing business, but thriving in business, into stark focus.
But how do you go about ensuring the medium to long term safety of your cashflow?

One aspect entirely within your control is when you issue invoices. You should do this immediately. But that’s the easy part. Take this for example:

You get the good news. You’ve received and fulfilled a large order from a new customer. Bad news, they haven’t paid you. This situation can see even the best business go under. Good businesses deal with good businesses. You can check them out prior to committing by performing a credit check.

Unfortunately, sometimes a situation arises where, despite your best efforts, you have a cashflow crisis and the option of ceasing trading looms, an unexpected tax bill for example. But you shouldn’t worry. You still have options if you’re prepared. A business charge card is just one, and can give you fast access to liquidity with favourable terms. Of course, you should pay it off as soon as the situation allows, but it does keep you trading.
Ultimately, what it comes down to is making sure that get the right support from the right advisers. Someone who can help you focus on what matters in your business, cashflow, and make sure you have ample foresight to see any bumps in the road.

AIMS Accountants work with valued advisors. You can find out more here