Profits or Cash Flow?

We need a better system for managing cash flow, but I’m not sure where to start. I need help understanding our current cash position and what to expect near term and long term.

Cash is king, right? What’s more important to a small business, profits or cash flow? The way you answer that reveals a little something about your understanding of small business finance. Cash flow is always the correct answer, and emphasizing the importance of proper cash flow management is a hallmark of Virtual BeanCounters outsourced accounting & finance service. The answer is cash flow because profits are only one component of cash flow, and important component, but only one component. Profits don’t necessarily pay the bills or cover payroll when they are tied up in receivables or inventory.

The absolute number one key to small business longevity is implementing cash flow management practices that are designed to produce consistent, positive cash flow. The ugly truth about small business failures is that less than 25% of business owners/management and less than 8% of employees have even a cursory understanding of business financial concepts, accounting and cash flow management. Consequently 80% of businesses fail in the first seven years.

Strong cash flow does start with managing a profitable business, which means understanding direct costs and gross profit on every sale, and understanding what gross profit levels are required to cover your overhead. But cash flow management also means best practices in managing receivables, inventory, capital equipment needs, and proper debt management (short and long term debt) to name a few. Understanding these concepts requires more than the typical bookkeeper brings to the table. That’s where Virtual BeanCounters comes in. Our outsourced accounting service is designed to provide you with the appropriate skills at each level of the process so you have a team in your corner to help you with the lifeblood of your business, managing cash flow.