Profit is an Opinion but Cash is a Fact. (Part One)

I wasn’t very good at maths in school. Working in business has taught me that if there is one financial statement that is more important than any other it is cash flow. Thankfully it is the easiest one to understand. Cash in and out. Lots of orders and invoicing might make you think you are profitable but if they remain unpaid and you run out of cash you hit a brick wall. Lesson One. If you are a sole trader you may have to be both Mr Nice & Mr Nasty.  Mr Nice when you are selling but Mr Nasty when the client doesn’t pay. It can help if you can get someone else to be Mr Nasty but often that person doesn’t exist. Make sure your payment terms are clear, ideally try and get cash in advance from the people who owe you money, get credit terms from the people who you owe money to and minimise your stock because that means cash is tied up. And when you try and think of who does this really well think of the supermarkets. They get money when we shop virtually instantly and probably pay suppliers on a 30 or 60 day basis. Are they supermarkets or banks?

Leave a Comment