13 Feb Quick Tips From Success Coach Mike Eisenhuth – Profit versus Cash
Do you know the difference between cash flow and profit? Many small business owners assume that cash flow will be at least as positive as profitability at any given time. Additionally, they assume they can count on their financing requirements to be predicted by their expected profits and losses as indicated on the Income Statement. But this is incorrect and a dangerous assumption to make. As a contractor, you have other business dynamics occurring that may require cash availability greatly beyond what you would predict from the Income Statement. These dynamics include:
· customer invoicing schedules in arrears of incurred cost
· slow-paying customers
· significant retention withheld by customers
· disputes about change orders and extra work
· cash flow required to carry out succession planning arrangements
It is these dynamics, among others, that make the Cash Flow Statement and proactive cash flow planning indispensable tools in your business.