What’s more important: cash flow or profit?

1. Businesses without a steady cash flow are more expensive to run

If a business has an irregular cash flow, it could fall behind on its own loan repayments or supplier invoices while waiting to receive payments. This can quickly add extra expenses from late fees and interest. In addition, many small businesses end up using high interest options such as credit card debt to make ends meet. Business owners might consider other viable options such as accounts receivable finance in order to gain control of their cash flow.  

2. You need cash flow in order to grow

Most expansion plans need two factors in order to be successful - they need capital and cash flow. Unless your business is lucky enough to have a pile of capital waiting to be used, cash flow is going to be essential in maintaining repayments on any business finance.

3. It’s a question of timing

It’s well and good to have a profit at the end of the year. However, if your business doesn’t have cash to pay for wages fortnightly, loan repayments and invoices monthly, business tax and utilities quarterly, and the myriad of other expenses throughout the year, a profit at the end of the year means nothing. Even modest outgoings coupled with irregular cash flow could mean that a business might not last long enough to make a profit. Invoice finance can be invaluable for small businesses looking to make sure that when they need cash to pay their own invoices, they have it.

Written by David Jackson, CEO of FundX