Which is more important: Profit or Cash Flow?

5 Myths of Running a Small Business

by Jeffrey K. Prager

We’ve got a problem.

Some new builder and contractor clients resist the techniques we teach to drive profitability. These are proven techniques, but some business owners just can’t wrap their heads around them. And after some research, we’ve discovered why. It’s because of five bad business ‘myths’ that most business owners not only believe, but take as gospel.

These myths are more than just wrong. They actually blind people to better business practices. So, here’s the first of our Top 5 myth busters:

Myth #1: It’s all about making a PROFIT!

Truth: It’s not about profit—it’s about cash flow.

This first myth is the source of a common mystery: How can some businesses go for years without profit? It’s a mystery because everyone believes that profits are everything. But you can’t put profit in your pocket. You can only put cash in your pocket. And that means focusing on cash flow.

When I say cash flow, I mean money coming in, money going out, and your cash balance. Your cash balance is not just money in the bank. It’s how you manage money, make decisions, and create opportunity.

The difference between profit and cash balance is the difference between life and death for your business. You can have zero profit for years if you’ve got a healthy cash flow. But if you have zero cash flow, you might as well put your office furniture on Craigslist right now.

Think bigger than profit. Think cash first, profit second. Profit is a long-term result, but it only comes if cash flow is your short-term obsession.

The three critical mandates for cash flow:
#1: Cash flow is literally the blood in your company’s veins. It’s how you survive in the short term. But it’s also how you thrive. It’s a lot easier to hire or buy new equipment or take on new jobs when you have $40,000 in the bank instead of $400.

#2:  You need to manage profits, not just pocket them. That’s how you survive in the long term.

#3: Truly successful businesses consistently generate and consistently keep cash. This is how you create a business with value. And when it’s time to sell your company, that consistency is what buyers are looking for.

For a real-world example, take Amazon.com. They launched in 1995. They first made profit in 2001. Now their profit is in the billions. If they’d focused  solely on profit, they’d never have made it to where they are today. They got there by managing cash flow.

Our CASHFLO™ software system puts all the tools to generate and manage your cash flow right in your hands. Everyone in your business uses the software to coordinate activities, and you use it to see how their activities affect your cash flow.

Speak Your Mind

*