Lack of Cash? A Hole in Your Business Wallet?

The Difference Between Cash and Profit

Tips for Managing Your Business Cash


When discussing financial results with business owners, I am often asked “if I have made so much profit, where has all the money gone?”  The relationship between profitability and cash flow is one of the most confusing concepts for many business owners.

Having cash available is imperative to the viability of any business.  Sure, profitability is important, but profit doesn’t pay the bills… cash does.

Here are some of my tips for understanding and managing cash:

  1. Don’t neglect the focus on cash!! Profit is frequently the focus of many business owners, but CASH is actually more important area for business owners to focus upon.  It is very common for a business to make a tidy profit, but to struggle to pay bills as and when they fall due as a result of having negative cash flow.
  2. Understand that there is a fundamental difference between profit and cash flow.  The profit at the bottom of your Profit and Loss Report doesn’t always mean you will have this value in your bank account.  From your profit, you need to deduct various outgoings you have made such as bill payments, loan repayments, distributions to shareholders, a new major asset (e.g. vehicle or machinery), GST payments. 
  3. It never ceases to surprise me how many businesses don’t have a means to monitor their cash flow.  Every business needs a cash flow forecast… EVERY BUSINESS.  A cash flow forecast is simply a means to estimate what cash the business expects to receive in and pay out.
  4. If you are owed money for your sales, chase them promptly but politely.  If you don’t make the call, it is likely that the business that does make the call will get paid before you!!
  5. Pay your accounts payable within terms.  If unable to do so, don’t be afraid to be up front about this, and to ask the suppliers if they will agree to affordable payment terms.
  6. Establish a separate bank account for your GST, superannuation and PAYG Withholdings and don’t be tempted to dip into it.

For cash flow forecasting made easy, for assistance in chasing monies you are owed, or for assistance in negotiating terms with your suppliers, give Solution Providers Accounting.  We will help you get to the bottom of the hole in your business wallet!!