Cash Flow v Net Profit

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

Net Profit and Cash are not one in the same.  Many business owners don’t understand why.

My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.  

Cash is derived by taking net profit which you are likely familiar with and adjusting it for non-cash expenses like depreciation and amortization and then changes in all of the balance sheet accounts.  And by changes, I mean the differences from one accounting period to another.  For example, let’s say Accounts Receivable went from $10,000 last period to $30,000 this period that is a cash depletion of $20,000. Because the increase in Accounts Receivable represents cash that did not come in. Another Example is if Accounts Payable went from $10,000 to $20,000 That represents a cash increase of $10,000 because that is money we kept and did not pay vendors.

A business owner who runs their business purely on cash flow will likely make bad business decisions.  A business owner who runs their business purely on net profit will also likely make bad business decisions.  It is the CEO who understands and manages their business by understanding both cash flow and net profit who will maximize both profitability and cash flow.

Remember, the most successful business owners know their numbers.

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Cash Flow Statements

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

Most business owners look at their P&L, some business owners look at their balance sheet, but virtually no business owners look at their cash flow statement.

My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.

In order to run and manage a business effectively, the business owner needs to look at all three financial statements.

That’s the P&L, balance sheet, and cash flow statement.

Omitting the cash flow statement is the reason why business owners don’t know where cash, the lifeblood of any business, is going.

The Cashflow statement can be hard to read but the cash flow statement in quickbooks starts with net profit, and then it adds back depreciation and immunization and the rest of the numbers are the changes in the balance sheet accounts for the date range requested, and those changes are either sources of cash, which are positive changes, or uses of cash, which are listed as negative changes.

By reading the cashflow statement, you’ll know where cash is going.

And remember, the most successful business owners know their numbers.

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Business Forecasts

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

By doing a business and cash flow forecast you will know more about your business than 80% of your competitors know about theirs.

My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.  

The business and cash flow forecast is so revealing in terms of understanding the most effective business model you can have, that the business owner can’t help but begin to develop and implement the right strategies making their business more successful and more of a threat to their competitors.  Why, because the business and cash flow forecast is a business model and if it does not work in the forecast it will not work when executing it.  

And remember, the most successful business owners know their numbers.

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Being Successful

Over the next Several Weeks we will be posting a new and different one-minute video providing business tips and instructional commentary for small business owners.   These tips will range from key metrics to consider to the importance of Business and Cash Flow Forecasting.

In business and entrepreneurship, all you have to do is be spectacularly right, one time, about a business or an opportunity in your business, and you will be abundantly successful.

My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.  

One great thing about being an entrepreneur is it really doesn’t matter how many times you were wrong because as long as you are spectacularly right one time about a business or an opportunity, you will be abundantly successful.  

A big part of being spectacularly right is having good financial numbers, understanding what those numbers are telling you, and looking into the future to know your risks and opportunities.  

And remember, the most successful business owners know their numbers.

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