It’s a cliche to say that money makes the world go round. But it can’t be denied that money makes the business world go round. If money isn’t flowing through your business, then something is seriously wrong.
Cash should never be stagnant in your business, and it’s even worse if there’s nothing there in the first place. You need to constantly have money coming into your business and then you need to be putting that money to good use. Otherwise, your business will stagnate as well.
Cash Flow and Profit
Cash flow and profit are both vital parts of a successful business. Ideally, your business should be turning a profit while running with a positive cash flow.
Profit refers to the surplus revenue that your business generates, while cash flow refers to money running in and out of your business. If you have a positive cash flow, then your company is able to use its assets to facilitate further growth and development.
Spending money isn’t a bad thing, as long as it’s going to the right places. If your business has a healthy cash flow, then it has liquid assets for paying debts and employees. Even if your business is worth a lot, if the cash is tied up and stagnant, then it can’t function.
Your profit ultimately determines how healthy your cash flow is, as you need to make money to be able to use it.
Generating Money Before Profits
However, when you start your business, you aren’t yet able to turn a profit. This is why you should consider using a financial partner to help you to get things off the ground. This way, you can generate some money to buy the equipment and everything else you need to be able to operate your business.
This initial cash injection can then be paid back once your business starts earning a profit. But you need to have money before you can make money.
As mentioned above, the money that your business generates should always be put to good use, rather than being allowed to accumulate. If it’s just sitting there, then it isn’t helping anyone. True, having a safety net of funds is useful, but your money needs to move.
This doesn’t mean that you should spend all of your cash as quickly as possible without thinking about it. The trick is to make your money useful, not to waste it. With this in mind, you should aim to save your business money where you can so that you can put it to better use.
As your company grows, you may need to pay employees, rent office space, hire or buy equipment, and keep everything maintained. This all needs money, which means that you need to keep track of where it’s flowing and plan your purchases accordingly.
If you use a professional accountant, they can find any areas in which you could potentially save money, so that you can reallocate it to something more productive.