The 1 Financial Indicator Business Owners Can’t Ignore!

It’s possibly one of the questions I am most asked by my customers: should I be focusing on my cashflow or my profits? It can be a difficult question to answer, as cashflow and profit are both critical to your success.  Obviously cashflow is a leading financial indicator you can’t ignore. But without continued profitability, before too long your cashflow will suffer.

Profit is the surplus you have after all the business expenses have been paid. It is also the basis on which your tax is calculated.With cash you pay for those expenses including wages, super, supplier and operating costs. With cash you also pay for other things such as assets, interest on debt, GST, PAYG withholding and income tax. Clearly there is a dependency on cashflow that the business requires to survive. While profit is essentially the big picture of a business - you need cashflow to keep it running.

Your cashflow can come from a number of sources - obviously, positive (debt free) cashflow is key. Positive cashflow means you can make further investments in your business (e.g. hire new employees or engage in further marketing for growth), whereas negative cashflow indicates more cash is flowing out rather than coming in.

Business owners must understand that consistent long-term profitability is the most important indicator of a successful business. But without cash, the business can’t survive.  Cashflow deficit and reliance on debt funding are most often caused by rapid growth, inadequate (or no) cashflow management processes, and poor, often premature decisions.  Profitability combined with strong and healthy cashflow is a sure indicator of good financial health.

There’s a reason the saying ‘cash is king’ exists. Positive, well nurtured cashflow helps your business operate,and can see you safely through a rough patch if revenue hits a slump. Having cash on hand at all times is critical, but having good positive cashflow indicates the business’s ongoing ability to survive and thrive.

Having strong cashflow undoubtedly provides the capabilities a business needs to invest in its future growth. From hiring resources, buying new assets and inventory, investing in a solid marketing plan, providing training as well as improving technology - positive cashflow puts your business in a better position to grow.

Our team at Minnik Integrated Financial Solutions are passionate about assisting you to achieve financial freedom. Contact us today to understand how we can assist you to review and potentially improve the profitability and cashflow position of your business, and maximise your personal wealth.