Cash flow and profit are the two sides of the same coin that will help you to raise your business to new heights. Although these terms are distinguishable from each other considerably, they are dependent on each other. So, you must understand cash flow vs profit. Further in this article, we will discuss how both of these metrics will impact your organization.
Cash Flow — The Life Blood of Your Organization
Cash flow is the total inflow and outflow of capital from your organization — it determines the working capital of your business — if you want the growth of your organization, you need to grow the cash flow. Moreover, a cash flow statement is necessary because it will help you to demonstrate credibility and showcase the financial health of your organization in front of your key stakeholders. So optimizing your cash flow will help you in the growth of your organization. There are applications like CredFlow which will help you to get a 360-degree view of your revenue line, and you can automate the process of sending payment reminders. So, it will help you to improve your cash flow and reduce the payment collection time, thus, improving your working capital.
Profits — Source of the Fuel for the Growth Engine of Your Business
Profits are the net revenue of your organization after paying up all the business expenses. So whatever income you take home from your business is the net profit of your organization, through which you can run your expenses or reinvest in your business for growth. Therefore, the profit of your organization will drive the expansion of the business because you can expand your business with the capital you earn.
Thus, if your business is profitable, it will help you to grow your organization and expand in various verticals. Budget planning is also important for the growth of your organization.
How Cash Flow Uplift Profits
When your organization has a good and healthy cash flow, you can invest in newer business opportunities, thus expanding the sources of revenue. Moreover, with a positive cash flow, you can lower the overall debt of your organization by paying the interest through cash flow. So, the overall profitability increases in your organization.
Furthermore, expand your product inventory with a good cash flow, which will, in turn, raise your turnover and take-home income. Therefore, positive cash flow can help in increasing the profitability of your organization through indirect means. It can be the stepping stone toward a better future for your organization, but it does not guarantee that your business will remain profitable in the future. There are instances where the cash flow is negative, and the business is still running with good profit. Though in those cases, by the end of the day, organizations cannot sustain themselves in the long term.
At last, cash flow is crucial for the business as much as the profits of the organization. These are both metrics that will help you to grow your business and flourish. As both of these metrics are different but both of them are equally important for the next phase of growth for your business. So if we want to grow our business cash flow vs profit is equally important. Therefore, creating a budget plan is important which includes both profit and cash flow statements.