For most small business owners, profit is the most important thing that many aim for. However, the best financial advisors for businesses will tell you that you should be focusing on cash flow other than the profit.
Not all business owners are aware of the role that cash flow plays in maintaining their business’s financial health. For this reason, it is highly advisable that business owners seek the services of accounting experts who can help them understand and handle their finances better. For instance, you may be wondering why cash flow is more important than profit.
To give you a deeper understanding of the notion, here are some reasons behind this statement:
Cash Flow Reflects Operational Issues
Observing your cash flow can help you tell whether your business is having some operational issues. These issues won’t be detected if you’re just looking at your profit. One example of this is that when your clients are delayed with their responses to your invoices, the cash flow can be out of balance. In the end, you might find your business losing profit in one month and earning more than expected in the next. The reason for this is the imbalance in the incoming cash flow.
Cash Flow Helps Grow Your Business
Rather than relying on your daily small profits now, having a positive cash flow that can help you expand your business is so much better because this will ultimately lead to even bigger profits in the future. When you focus on using cash flow to grow your business, you can look forward to a business expansion on your horizon.
Cash Flow Means Money on Hand for Debts
If you don’t leave money in the bank, your debts could increase. If you fail to make payments on time, you will then have to pay for late fees and overdrafts. On the other hand, when you have a steady cash flow, you can pay off any debts on time and achieve financial freedom sooner. When you get to that point, your business will continue to flourish as you can use the money for investments once all your debts have been paid off!
Positive Cash Flow, Together with Profit, Can Help Convince Investors
For a business to attract loyal and long-term investors, it needs to be profitable and have a positive cash flow that is proof of a company’s true potential. Keep in mind that investors also prefer organisations that know how to handle their finances well.
Positive Cash Flow Helps You Avoid Huge Loans
You might think that you can manage risky investments by taking big loans, but that’s not the case if you have poor cash flow and you get delayed repayments. When this happens, interest rates will increase, making it harder to complete your payment on time. Having a positive cash flow means that you have the money for repayments, and you might not even need to borrow money in the first place.
Conclusion
As you can see, cash flow plays a big role in determining the current state of your business and where it will be in the future. Remember that profit is not the only determining factor that will tell you if your business is going as well as it should. You need to maintain a positive cash flow if you want to eliminate all debts of your business, attract potential investors, and expand your business in the coming years.
If you are not familiar with handling financial matters, knowing some finance tips and tricks won’t be enough to get your company where you want it to be. You are going to need the help of seasoned financial advisors to ensure that you retain a positive cash flow!
New Wave Advice can provide you with strategic cash flow planning in the Gold Coast, among other services. Contact us today to find out how we can help your business grow!
