What is Cash flow, how is it different from profits?

What is Cash flow?

Simply, this is the net cash you have in your bank account at the end of a period, whether it’s a day, month, or a year. And it all depends on proper cash equivalent management.

Cash Equivalents, are those current assets & liabilities that you manage in your business, like Receivables, Inventory, Payables, and short term loans and line of credits

Profits or Losses (P&L), on the other hand are the simple SUBTRACTION of Costs in general, whether it’s Costs of Goods Sold (COGS), Selling expenses, or General and Operating expenses, from your Revenue.

Now, how this is different from Cash Flow – here is an Example

You sold a product to your client for $1000, and your costs are $700, then your Profits are: $300

Simple, how is this different from your cash flow then? Well, if you offer your customer payment terms, and let’s says these terms are 30 days, so your customer is paying you for that $1000 in 30 days?

On the other hand your supplier for this product doesn’t offer you any terms, and therefore you shall need to pay your supplier the $700 immediately upon receipt of the product.

How does you bank balance looks like now? It will be a negative $700, and if you don’t have a line of credit with your bank, or you can’t finance this from your own money then you are in trouble.

That’s why a lot of business face financial difficulties although they are profitable, like the example above, and that’s why it is very important to manage your Cash Flow efficiently.

At GlassQbe, We are experts in Cash Flow management, using tools to help business efficiently collect their receivables, and negotiate better payment terms with suppliers for their payables, resulting in Free Cash Flow (FCF)

Talk to us today, and we can help you manage your Cash Flow efficiently!

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