Profit vs cash
There’s 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 ‘bricks 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
We can help
This is not an exhaustive list of ways to increase your profit and cash. Book a meeting with us and we can help you identify specific areas of improvement in your business to increase both profit and cash.
Email: admin@walshassociates.co.nz
Phone: 06 833 6295
“Never take your eyes off the cashflow because it’s the lifeblood of the business.” – Sir Richard Branson