Profit is not Cash!

It’s understandable that most people in business measure success in terms of the profit they make. They know that a profitable business can pay its bills and provide a living for its owners.

While this is generally true, it isn’t the whole story. The fact is that the bills and the owners are actually paid from cash, not from profits. A simple example shows this. Imagine a small widget manufacturing business that has just started with $4,000 in the bank, which it used to buy the raw material to make 1,000 widgets, which it has sold at $10 each ($10,000 in total) on 30 day credit terms to a customer. The business profitability is excellent – a $6,000 gross profit on its first job.

But there’s no money in the bank. The overhead costs like rent, power & fuel have not been paid and there’s nothing for the owners, plus there’s no cash to buy more raw material to make more widgets until the customer pays the $10,000. Profit is not cash and you can only pay bills with cash not profits.

Cashflow finance is the finance tool used to bridge the cashflow gap because it accelerates the payment of your invoices and releases the cash locked up in the sale transaction. The cash that is released recovers your direct costs, like raw material and wages, plus overhead costs and of course your profit. This enables you to immediately continue making sales and hence more profit, because you no longer have to wait until your customers pay.

Profit is never cash, but with a cashflow finance facility, not only will you will be able to access your profit faster, you will make more profit!