Thank you to “The Fifth Element” for such an Awesome Quote!
Why do I use it in a business article?
Quite simply, isn’t that why we are in business in the first place?
I don’t mean to say that we only are in business because we want money. I mean to say, that we are in business because we want CASH…
Or, allow me to put it as simple as possible.
We are not in business to turn a profit, we are in business to make money.
How many businesses in our marketplace, with the economic drivers and pitfalls that we have experienced over the last few years (I speak of North America, Canada in particular), end up at their corporate year end, with an incredibly bright accountant or book-keeper extensively praising the profits that the business is gaining…Only to have little (or no) actual money in the bank.
As business owners, we feel an obligation to the sacred obligation that is our books, to turn a profit.
Profit does not equate cash.
Why the discrepancy?
It is quite simple (again, I use that word)…
Our cash balance for our business, and the profit that we report, actually have very little to do with each other. In fact, if you look at your Balance Sheet for the year (have you seen your balance sheet?), you will find that your net profit for the year, and the cash balance (that you may or may not have), actually live in completely different places from each other.
When we chase profits in our business, particularly in small business, we are taking our eyes off of the most important measurement of business success, cash.
Bear with me here.
You see, if I structure my business, so that I monitor my cash on a daily or weekly basis, and I am watching for my expenses on a weekly basis, what I accomplish is a proactive decision making system, where the physical money that I have in my business only allows me to make decisions in two ways – real-time & proactive. I force myself to make budgetary decisions as my business either grows or shrinks, in real time, and thus, am watching what the actual money does for me. By my hand.
When I decide to watch for my profitability, it becomes a passive exercise. One that is always 30 days late. Each financial transaction decision I make is made from a money position that happened sometime during the last month, usually at the end of the month, depending on such variables as receipt submission, reliability of accounts payable and receivable being up to date, whether CASH!?!! was used for purchases, credit, or personal credit (the number of business owners who either use their personal credit cards for business, or do not have business credit, is scary), can leave the “true” picture of how much ‘UP” or ‘DOWN” we have experienced in our business.
Make no mistake, your financial reporting system MUST be accurate, as close to up to date, and reflective of the true position of your business.
What I am suggesting, is that if you spend more time tracking and preserving the cash you have in your business, the quicker you can make sound decisions.
The faster you respond to challenges (read: trouble).
The greater you can maximize and opportunity.
All because I follow my cash, instead of chasing profit.
One strange detail to note here: While attempting to grow cash by focusing on your business profitability can generally leave you wanting, concentrating on preserving cash first WILL have a positive result on your business and its profitability.
Don’t believe me?