Sales May Not be the Answer to More Cash Flow

by Cash Flow Accounting on June 3, 2014

Sales May Not be the Answer to More Cash FlowNeed more cash? The first, gut response, is usually to think about how you can make more sales. In fact, there are a lot of business consultants, especially ones that are really good at selling “how to sell” courses, who will tell you that making more sales is the ONLY thing you can do. That’s simply not true. Let’s start with the root problem.

There is a lot of misunderstanding about cash.

First of all, the cash in your bank account has nothing to do with the income of your business. They are two different numbers entirely. Cash can come from sales of assets, from taking on more liability, from selling equity or from sales. Cash flow that goes out could come from buying assets, paying off debt, buying back equity, from the cost of goods/services or from general & administrative costs.

But let’s assume you know that cash doesn’t equal income. And you do know how to read all three of your financial statements (balance sheet, income statement and statement of cash flow.)

You still could have a fundamental flaw in your plan. For most people who are struggling to get more cash flow from their business or to create a sustainable systemized company, they thing more, bigger, faster is the answer. And that’s like going to your mechanic for a sputtering engine and he puts more air in the tires. Sure, that is one solution for one problem (your tire pressure is low) but it doesn’t solve the problem you have.

If you want more from your business, sales may be the last thing you need to do. You can make a lot of money from a small business. And you can lose a lot of business with a big business.

When it comes to sustainable success in a business, size doesn’t matter.

What does matter is having accurate financial statements and knowing how to read them.   There are four things you need to have to accurately understand your financial statements:

  1. You need a constant to compare against,
  2. You need to know what a change indicates,
  3. You need to know what the cause of the change was, and
  4. You need to know what to do to have more or less (as required) of that change.

This all starts with accurate financial statements. Do you have, right now, a financial statement that is less than 30 days old? If not, give us a call. We can help. Cash Flow Accounting is a virtual bookkeeping service that gives you the financial statements you need to make timely, smart decisions about your business.

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