Maclean Partners, Chartered Accountants, Financial Planning, Townsville, Queensland
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Profit vs cash

January 1, 2022

Profit vs cash

 

There is a massive difference between profit and cash.  Let's explore the differences to make a better plan to increase both.

1.  Sales.
Profit increases when you increase sales; cash increases when you collect the money from customers.  To increase both your profit and cash from sales:

  • Delight your customers
  • Generate more leads and referrals
  • Convert a higher number of quotes or proposals
  • Increase transaction frequency
  • Increase transaction value

2.  Invoicing.
Profit increases when you send an invoice to a customer; cash increases when you collect the invoiced amount.  To increase both your profit and cash:

  • Set clear Terms of Trade
  • Offer a small discount for early payment
  • Agree the price in advance
  • Stick to your payment terms
  • Don't do work for people who have overdue payments

3.  Margins.
Increasing your margins will increase your profit; collecting the increased margin will increase your cash.  To increase both your profit and cash:

  • Increase your prices
  • Invoice faster
  • Negotiate better payment terms with suppliers
  • Reduce errors and rework
  • Train and empower your team
  • Increase your efficiency

4.  Financing.
Reduce your finance costs to increase your profit; borrow money for assets to increase your cash.  To increase your profit and cash through financing:

  • Spread the costs of assets over 3-5 years instead of buying them outright (e.g. vehicles)
  • Borrow from a bank instead of a finance company   
  • Secure the asset purchases over 'brick and mortar' (if possible)

5.  Overheads.
Reducing your overheads will increase both your profit and cash.  To reduce your overheads:

  • Negotiate with suppliers
  • Measure your return on your spend (e.g. advertising, accounting fees, etc.)
  • Review your subscriptions
  • Go paperless

This is not an exhaustive list of ways to increase your profit and cash.  We can help you identify specific areas of improvement in your business to increase both profit and cash.

"Never take your eyes off the cashflow because it's the lifeblood of the business." - Sir Richard Branson

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