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Cash is not profit and viceversa

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

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.

 

Your business can’t survive without cash.

The following six takeaways are essential for business success:

1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.

2. Create a cash buffer as an insurance against unexpected difficulties.

3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.

4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.

5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.

6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

 

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

 

The Maritime Museum Foundation has enjoyed a significant long term relationship with the team at Lynch & Associates. They continue to provide our board with outstanding professional service and sage advice. I would unreservedly recommend their accounting, audit and advisory services.”

Eric Mahoney, Chairman, Maritime Museum Foundation

Lynch & Associates have been our accountants since 2018. Through that time their friendly and approachable team have guided us and made good, clear recommendations for our theatre company for children. Their support and advice continue to help create a stronger, more sustainable charitable organisation. 

Tim Bray, QSM, Trustee and Artistic Director, The Operating Theatre Trust

It has been a pleasure working with Errol Burn and the team at Lynch and Associates, their insight, intelligence and in-depth knowledge of the social impact sector has allowed the Sir John Kirwan Foundation to flourish and grow.  Fully supporting the Foundation in all of its financial needs, Lynch and Associates have never failed to deliver, always providing calm, thoughtful advice together with encouraging us to consider every aspect, to ensure maximum benefit.

Nikki Flexman, Head of Growth, Sir John Kirwan Foundation

We have used Lynch and Associates services for over 15 years and have always found them to be a very friendly, helpful and professional team. They also really care about us and our business, as they went out of their way to assist us during difficult times. We have also used their professional business services that proved invaluable in helping us to get through a rough patch and refocus our efforts. Their approach to business services was understanding of our situation but well blended with firm encouragement to address issues and make strides towards improvement. We highly recommend them for both their accounting and professional business services.

Darryn Smith, Director, Multicolour Screen Printers Limited

A huge “Thank You” and shout out to the team at Lynch & Associates for all the consulting and accounting services they have done for my wife and I over the past 12 years. The team have work diligently on both trusts and a number of companies for us over this time and long may this continue. It is so great to engage with a professional proactive team that results in no sudden surprises at the end of the tax period. We look forward to the catching up soon and hearing what is new and how else we can move forward faster financially.

John and Shelley Bishop 

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