To run a successful business, you need to know the difference between Profit and Cash, and no, they’re not the same thing. So if you have used these two terms interchangeably, allow us to introduce you to tonight’s opponents.
What’s the difference between cash and profit?
Making his way into the ring is the mighty King of Cash Flow. Want to settle debts, make purchases, or save for a rainy day? He’s your guy.
He’s been working hard, detailing the total amount of funds that flow in and out of your business during different periods. So please put your hands together for this fan favourite.
As we all know by now, Cash is King. But if you think he has this match in the bag, don’t forget who’s Queen. On the other side of the ring – brokers love her and accountants avoid her – it’s none other than Queen of Profit. You’ll only find her when you’ve subtracted all your expenses from your revenue, and tonight she’s returning from a hiatus.
Not sure who to root for? If you need a loan, brokers need to present your case, and Queen of Profit will demonstrate just how good you’re going to be at paying off loans. On the other hand, your accountant will be trying to keep your profit as low as possible to minimise the amount of tax you need to pay.
Without further ado, let the battle begin!
How can I improve my cash flow and profit?
Round 1 – Sales.
Profit is off to a strong start, drastically increasing their points with their recent increase in sales. Cash manages to fight back after collecting the money from customers. It was a close round, but as the bell rings, it’s obvious this round is a tie. Both of the contestants are benefiting from sales being up with their match tactics:
- Delighting their fans AKA customers and clients.
- Increasing their conversion rates for proposals and quotes.
- Producing more leads and referrals.
- Increasing the frequency and value of transactions.
Round 2 – Invoicing.
Once again, profit takes the lead, increasing as soon as their invoices are sent to customers and clients. However, once these transactions are processed, Cash manages to fight back as soon as an invoice is paid. Yet again, there is no clear winner after they both implemented some airtight strategies:
- Establishing and upholding clear payment terms.
- Offering small discounts for early payments.
- Agreeing on the price in advance.
- Ceasing work with clients with overdue payments.
Round 3 – Margins.
The audience is getting restless, will there be another tie? Profit may be quicker on their toes, with their score increasing as the margin increases. However, it won’t last long, with Cash swooping into the lead as soon as the margin is collected. The coaches are now giving pep talks, but the advice to improve both of their performances remains the same:
- Increasing your prices and efficiency.
- Invoicing faster.
- Negotiating better payment terms with their suppliers.
- Reducing errors and iterations.
- Training and empowering their team.
Round 4 – Financing.
Cash is entering this round refuelled after borrowing money for their assets, but Profit has been working hard on reducing their finance costs. There is a lot of strategic play happening now with points scored from each contestant, thanks to:
- Opting to borrow from banks instead of a finance company.
- Spreading the cost of their assets over several years instead of buying them outright.
- Securing their asset purchase over bricks and mortar.
Round 5 – Overheads
Will there be a crowning winner? Both Profit and Cash are looking strong as they reduce their overheads. They’ve been prepared for this one, thanks to:
- Negotiating with their suppliers.
- Measuring their return on their spend.
- Analysing their subscription costs.
- Going paperless.
The Results Are In.
While there may be ways for Profit and Cash to increase their performance, it’s clear that after seeing them go head to head, that they would work better together. Too equally matched, their coaches from accounting and brokerage have decided to join forces to support both of tonight’s talent. When it comes to running your business, they both punch above their weight and should hold high ranking power.
How can I get more from my cash and profit?
If you want to uncover smart and specific ways to increase your profit and cash, our team of Randwick bound accountants are here to coach you through it. Whether it’s a full-day meeting to strategise what the future will hold and the best steps to get there, or regular teleconferences to review business performance and pain points, we’ll be cheering you along the way. Book a chat or get in touch with us today and let’s knuckle down on your profit and cash strategy.