Why Profit Isn’t All That Matters In Business

Posted by on May 20, 2015 in Blog

Why Profit Isn’t All That Matters In Business

In the business world, we hear a lot about profit margins, and the need to “charge what you’re worth”. It is true that it is important to have a strategic plan to achieve profitability in your business. After all, most can only afford to remain in business a short while if they don’t eventually turn a profit.

While you’ve likely not heard as much about cash flow, it is equally important to the survival and longevity of your business. Your cash flow is simply the money that comes into, and out of, your business. It’s important to time your cash flow so that you always have a positive amount on hand to cover your expenses.

Failure to have a positive cash flow can mean a lot of negative consequences for your business. For example, when you don’t have enough funds to cover your bills, you might pay some of your suppliers and vendors late, which can damage your relationship with them and result in you being charged higher prices for your basic merchandise and materials later on down the road.

A record of late payments, or simply not having enough funds to buy the items that you need, can also affect the quality and quantity of the items that you are able to obtain and then offer your customers.  If you aren’t able to give your clients what they want and need, they will eventually look elsewhere.

Having a negative cash flow can also impact your business by preventing you from being able to take advantage of unexpected opportunities. For example, you might have to pass up on a great deal on a popular, high margin item because you don’t have the funds to pay for it.

Worrying about having enough funds to cover your expenses also draws your attention away from focusing on your business objectives and goals. Eventually, this worry creates a literal time sink that saps your resolve, initiative and creativity, making it more difficult to stay in business in the long run.

While many business people focus on controlling their costs to improve their cash flow, it’s also important to not neglect your ability to increase your cash flow by growing your revenues. If you’re not on the lookout for ways to increase your income, you will also miss out on opportunities to increase your cash flow. Increasing your revenues is also part of the equation to increase the profitability of your company.

Revenue can come from many sources, such as income equity that you put into the business that you’ve earned from another job. It can also come from the sale of products and services, but it can also come in the form of interest or rent payments that you earn, funds that you receive from loans or even income that you receive from the sale of assets that you no longer use or need.

As a creative type, you’ve likely been focussed on embracing your passion and insight and using it to bring unique new products or services to your clients. It’s important to the success of your business to not neglect your vision or passion and to stay focused on your goals and objectives. It’s likely the reason you are in business to begin with! But you must learn how to get a firm grip on your money and manage it so that you have enough to cover your costs and eventually make a profit if you want to remain in business.

If you need help learning how to increase your cash flow or what steps you should take to make your business more profitable, why not get in touch with us today? As creative types, we know how important it is for you to be able to focus on running your business. That’s why we offer a full range of services in addition to keeping your books.