When business owners think about cash flow and profitability, they think they mean the same thing. The truth is, they are not the same at all! Cash flow is the money that flows in and out of the business from operations, financing and investing activities. It's the money you need to meet current and near-future obligations. Profit, also called net income, is what remains from sales revenue after all the firm's expenses are subtracted.
If you are having trouble with your cash flow, here are a few ways to smooth it out.
Line of Credit
Automatic Withdrawals from Customer Accounts
Trying these ideas will also help your business become more profitable. Having negative profit and negative cash flow is a bad combination!
It may be tempting to spend everything you make right away, but this is bad business practice. Always make sure to at save at least 3-6 months’ worth of payroll, rent and payroll tax cost. In case your business experiences a down time, you will be prepared.
By only spending your profit, instead of spending every dollar that comes in, you are fundamentally changing the way you think about your business. In turn, you are creating a higher chance of success, which is the most important aspect when running your own business.
Eric has over 25 years’ experience in small business, startup, and large companies and has held numerous roles focusing on business and financial strategy in businesses. He is currently the CEO and Owner of EDGe Business Planning. EDGe works with small business owners to help them understand their financial and business information and use it to grow their business profitably. Contact us at firstname.lastname@example.org.