You can be profitable and not cash flow positive

After reaching its break-even point, the quest of every revenue-generating business is to become cash flow positive.

This means that the money is coming in faster than it’s going out. Said in other words, money coming in is greater than money going out in a specific time frame.

There’s a misconception that once you become profitable, you are making money. The fact is you are making money on paper. When a company is profitable it means that their revenues are greater than their expenses.

Doesn’t this mean that money coming in is greater than money going out?

Not necessarily. Enter timing.

If you are selling on credit to get more business, then you are selling but not collecting right away. On the other hand, you pay salaries and rent when they are due. You might also be paying your vendors against delivery (i.e., cash).

In this scenario, you are selling more than you are spending, but you are collecting less than you are paying. In other words, you are profitable, but not cash flow positive.

So, how to change this?

· Increase your margins to build up cash.

· Offer a discount to clients that pay within the first 10 days of the sale.

· Request your vendors to give you payment terms, like Net 30 or Net 60.

· Review contracts to negotiate better prices or adjust costs as your business grows its history with vendors.

· Pay attention to fixed costs and keep them fixed, e.g., don’t move to larger facilities if you don’t need to.

Being cash flow positive -like many things in life- is all about timing.

If you are having challenges turning into a cash flow positive business, feel free to reach out to us at contact@summa.consulting to learn how we can help you improve your profitability and cash flow.