Cash Is Not Only King But Also The Entire Royal Family!
1. 12/6/2015 Cash Is Not Only King But Also The Entire Royal Family!
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Lisa is most passionate
about giving small business
owners back their time and
helping them to make
sense of their numbers to
enable them to make great decisions
about their business. A CPA qualified
accountant with 10 years experience as an
accountant and bookkeeper in a wide
variety of industries including computer
software, professional services,
biotechnology, manufacturing, personal
care and spare parts. Prior to qualifying as
an accountant Lisa spent 10 years
(including a 2 year stint in London) in
various office roles including
administration, banking, call centre and
accounts. She started Straight Forward
Accounting Solutions in 2015 specialising
in Xero accounting software which is the
fastest growing accounting software in the
world. Services provided include
bookkeeping, payroll, software training,
software installation and providing reports
and analysis that help business owners
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Cash Is Not Only King But Also
The Entire Royal Family!
November 25, 2015 | Lisa Stoneham
It is certainly not overstating the truth to
say that cash is everything to your
business. In a nutshell if you run out of
cash that is the end of your business. After
all your business cannot survive on love
and fresh air alone!
Don’t make the mistake of assuming profit
and cash are the same thing and if a
business is making a profit then it must
have plenty of cash. Entirely different
things drive profit and cash and a lack of understanding of this concept results in a lot of
businesses going under.
Profit (or Loss) is comprised of the difference between revenue earned and expenses
incurred. A business earns revenue when they sell a good or service and issue an invoice to
the customer requesting payment by a due date. An expense is incurred when a good or
service is purchased from a supplier and the supplier sends an invoice requesting payment
for the goods. Cash does not come into the equation until later on when the business
receives money from the customer for the goods sold or the business pays the supplier for
goods purchased at an earlier point. The time period between an invoice being sent and
actual money changing hands can vary greatly. If a customer takes a long time to pay it
can result in pressure being put on the businesses’ cash resources no matter how much
revenue is involved in the transaction. This is a major reason why cash cannot be tied to
profit.
Another important aspect to take into consideration is the purchase of assets such as stock
and machinery. Assets are not included in the Profit and Loss Statement and instead
appear in the Balance Sheet. Enormous amounts of cash can tied up in assets and if a
business owner was only looking at profit they can quite easily not realise that their cash
supplies are rapidly dwindling.
Fortunately it is not all doom and gloom. Knowledge is power and if you can understand
the key concepts of cash and profit then you will find it a lot easier to manage your cash
flow and avoid disasters before they happen. Make sure you don’t become a statistic!
Next month we will continue our series of blog posts on cash flow where we will uncover
the key factors that affect the cash flow of your business.
How do you manage cash in your business? Do you monitor your cash flow closely or do
you only look at your Profit and Loss Statement?
Comment below – I would love to hear your thoughts!
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2. 12/6/2015 Cash Is Not Only King But Also The Entire Royal Family!
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