{"id":702,"date":"2017-05-29T08:02:12","date_gmt":"2017-05-29T08:02:12","guid":{"rendered":"http:\/\/www.globalityconsulting.com\/blog\/?p=702"},"modified":"2017-09-06T07:02:14","modified_gmt":"2017-09-06T07:02:14","slug":"why-does-cash-flow-have-priority-over-profit","status":"publish","type":"post","link":"https:\/\/www.globalityconsulting.com\/blog\/why-does-cash-flow-have-priority-over-profit\/","title":{"rendered":"Why Does Cash Flow Have Priority over Profit?"},"content":{"rendered":"

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\nPerhaps one of the most frequently asked questions in the world of business is: should I focus on profit, or make cash flow my priority? Although they both play critical roles in your business success, there are some points to be made in cash flow\u2019s favor. So, don\u2019t fall into the trap of putting all your efforts into making profit, since it is not the main indicator of a successful business. There is no denying it is crucial when observing the bigger picture and long term benefits, but while trying to stay afloat in a sea of corporate sharks, you need stable cash flow to maintain financial health.<\/p>\n

The difference between profit and cash flow<\/h2>\n

These two different financial parameters<\/a> have a certain impact on your business. Cash flow is the money that goes in and out of the company from various investing activities. You need it to meet your current needs and obligations. On the other hand, profit is the money that remains from sales revenue after all the business\u2019s expenses are subtracted.<\/p>\n

To put it in more specific words, if a contract is worth $60,000, and it costs your company $40,000 to provide a good service, your profit will be $20,000.<\/p>\n

We can use the same example for cash flow. If your client decides to pay you in two stages of $30,000 each, you will send the first invoice and expect your first payment in about 30 days. A month later, you will send the second invoice and like the previous, expect it 30 days after. Assuming you receive the money on the exact due date you will have the cash inflow you need to keep your business running.<\/p>\n

The importance of cash flow<\/h2>\n

Have you ever heard of the expression \u201ccash is king\u201d? Well, there is some good reasoning behind it. Without cash, how could you be able to pay staff and buy the necessary equipment and material for your job? Besides, every business reaches a moment when sales are in a slump, and there is no profit in sight. In that case, you need the cash flow to keep you afloat.<\/p>\n

When cash flow is slow<\/h2>\n

It\u2019s never a good thing when there is not enough profit, but when there is not enough cash flow, that could question the existence of the entire company. After all, employees will not be willing to work for free and your company will not be able to provide services that require previous investments in material and equipment. The cash flow squeeze can happen for various reasons:<\/p>\n