Profit and cash flow are two of the most common phrases you will hear in relation to business accounts. Whilst business owners and shareholders are primarily concerned with profit, without a healthy cash flow a business simply can’t operate properly. So what actually matters more, cash flow or profit?
Why Profit Matters
Of course, we all know that profit matters: it’s the main goal of any business, especially one with shareholders. But as important as profit is, if it doesn’t provide what is needed, such as money for wages, stock and rent, then the business is going to have problems. If profits have been falling or are particularly low all of a sudden, then this will almost certainly impact cash flow, and the most important thing at that point is to get the profits back up again. Profits are also necessary to help a business grow beyond what you can do with your day-to-day cash flow.
Why Cash Flow Matters
Cash flow refers to the amount of money that can be used to make payments such as wages. Even with impressive profits, if the company is paying large amounts of money to debtors, its cash flow will not look good. Cash flow doesn’t only have to come from profits, however, as injections of cash can also come from loans or asset sales. Remember, a healthy and sustained cash flow is considered the better indicator of a healthy company than profits.
Managing Cash Flow
Managing cash flow is also where many businesses encounter issues, and poor spending can really impact profits in the long term. If you need help with managing your cash flow, then consider the assistance of business accountants Evesham like https://www.hazlewoods.co.uk/expertise/business-accountants/evesham.
In essence, you can’t have one without the other, but there will be times when a business needs to focus its attention more on cash flow or more on profit. A healthy business will have good cash flow, but of course in the long term profits are what really matters to all businesses.
