Cash or Profit – You know which is more important

Cash or profit. Would you value this bundle of notes more than future profit?Most professionals running their own firms know, when asked is cash or profit more important, what the “right” answer is. Why then do most of them not think in terms of the right answer when reviewing their business?

Cash is king?

It’s that lovely phrase and it is so right. Without cash you have no business, you may have the best professional services firm in the town, but without cash it’s no good. If you’re looking to increase your cash flow where might that cash come from?

  • Debtors – who owes you money? Why are you acting like a bank and lending people money?
  • Prospects – How can you tighten up your existing terms so you convert them more quickly?
  • Assets and stock – What old assets (PC’s etc) do you have sitting around that are soaking up cash that could be in your bank account? OK, you may only get a small amount; but if it’s not going to sell anyway, isn’t cash worthwhile?
  • Work in progress - How are you managing your WIP? Do you actively look to close cases and bill them, or could you get more interim payments made to you?
  • Read our 10 point plan for managing cash flow and improve your cash flow tomorrow.

Cash or profit?

The aim of your business is to generate cash in your bank, not generate theoretical profit. Ask yourself when thinking about pricing a new quote, do you work out the profit and then at the last minute think about “payment terms” (maybe), or do you think about cash – how much you’ll get, need to spend and when?

You might say they amount to the same thing, but sometimes it’s the little changes in the way we think about things that make all the difference. Which do you want your staff to focus on, cash or profit? If you start to focus on cash, so will your staff.

Cash and long term planning

Do you have a strategy covering the next few years? Does it involve changes to the way your firm operates now?

As an ambitious professional running a growing firm normally I’m sure you have ideas to grow your firm (more marketing ideas here), that means things change. Have you planned what those changes might mean to cash?

One business owner was planning on doing a lot of seminars as a way to grow his business (excellent idea linked to the trusted expert sales strategy) – except he failed to put the cash implications into his plan!  Cash Flow Planning – What might keep your business alive?

Key Performance Indicators

Creating the right focus on this problem is important. That’s about having an effective key performance indicator process in place? What KPIs do you regularly review which relate to cash? Download our free report “What are KPIs, why and how should I use them”, it's free and waiting for you. Click here for instant access (email address required).

What have you seen firms do to manage their cash or profit position?

Author Credit:
Written by Jon Baker The 5-50 Coach. I help professionals grow their firms from 5 to 50 employees, sustainably, profitably and still have fun. Have you got your "next step kitbag yet"? It's stuffed with guides, reports & templates helping you grow from 5 to 50 employees Click here for immediate access.

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