“What do you mean?” I asked.
Turns out, Steve is invoice rich, but cash poor -- meaning he has plenty of business (invoices going out and payments coming in), but he also has a lot of cash going out. He needed to understand the difference between cash flow and profitability.
The definitions are pretty clear, but sometimes the application is a little more complicated. Cash is the amount of money you have in your wallet, in your bank, or under the mattress. Simple as that. Cash flow is the actual movement of that money in or out of the business. Profit is the (theoretical) amount of money you keep after you pay your expenses, it is closely related to cash and cash flow, but it is NOT cash.
Steve’s design agency is doing all right. They generate $1.2 million in revenue and earn a 5 percent net profit on that volume. Steve’s customers pay 30 days after he invoicesRead More »from 3 Simple Tips to Improve Your Cash Flow Now