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For small business owners, achieving profitability is often one of the main goals for operating the business. However, no matter how creative your business or products are your business may still struggle, and inevitably fail, if you can't manage your company's cash flow.

Cash flow 101: Why you should worry about cash flow instead of profit

As a reference, one study found that 82% of businesses fail due to poor cash flow management.. Especially If you are a new SME (where cash management is especially challenging), it should be a key area of focus as you get your business up and running. Before we get too ahead of ourselves, let’s first explain the difference between cash flow and profit.

What is the difference between cash flow and profit?

Cash flow is a measurement of the actual money coming into and going out of your business. The simplest method of measuring your cash flow is through your bank account -- simply put, your business will have positive cash flow if there is more in the account at the end of the period than when the period began (and vice versa). Some common sources of cash flow in come from sales and investments and cash flow out comes from cost of goods, salary and interest payment etc.

On the other hand, the measurement of profit is more of an accounting concept and while it may be useful on paper (and in audited financial statements), it may not provide the necessary detailed insights into how a company is doing on a day to day basis.

Let’s walk through a couple of examples.

For example, you have a suit business in Hong Kong and last month, you sold $200K HKD in suits and the suits cost you $80K HKD wholesale, your gross profit would be $120K HKD

The first step to calculating profit is to take your total revenue and then subtract the cost of the goods sold. The difference is your gross profit.

Gross Profit = RevenueCost of Goods or Services Provided

         • Revenue:                                     $200,000 HKD

          • Cost of Goods Sold:               -$80,000 HKD

          • Gross Profit:                             $120,000 HKD

Let’s say you also spent $20K HKD in marketing to achieve this level of revenue. Marketing expense would be considered operating expenses (along with things like rent, equipment purchases, payroll, etc.) are taken out of Gross Profit to get to Net Profit.

          • Revenue:                                        $200,000 HKD

          • Cost of Goods Sold:                 -$80,000 HKD

          • Gross Profit:                                $120,000 HKD

          • Operating Expenses:               -$20,000 HKD

          • Net Profit:                                     $100,000 HKD

Congrats! You now have $100K HKD in profit on your income statement.

While this profit calculation seems simple enough, there are a few areas missing when it comes to understanding the health of your business.

1. Late or delinquent payments

Once you have made the sale, this $200K HKD is registered as revenue and included on your income statement. However, most companies do not receive the full payment amount immediately. For example, if your customer decides to send $50K HKD / month for 4 month, you’ll only be able to use $50K HKD / month for all of the other expenses that you need to pay. We also haven’t thought about worst case scenarios like what if the customer goes out of business after a couple of months and you cannot actually receive the full amount for the orders?

2. Pay loan back

If you had borrowed some initial capital to start your suit business, your income statement will not show the principal repayment of these loans.

3. Paying Inventory

If you spend more funds on buying additional inventory (ie. suits) from your wholesaler, you will probably have to pay it up front and not realize sales until some time later.

4. Taxes

While you may have a positive net profit, this is before taxes which will unfortunately decrease these earnings even further.

Cash flow is all about timing -- just because you’re profitable, there are usually other expenses that do not appear on your income statement and will affect your business.

Have a look to our article “Cash is Still King : How Startup can manage and improve their cashflow

Why is managing cash flow important?

1. Make your business more predictable

Seasonality is a often common part of running a business. Sales at ski resorts are higher during the winter and dumpling shops are more popular during Chinese New Year. A good cash flow management process will allow you to predict these cycles and come up with a plan to address them. A couple of examples:

• Provide discounts for customers that pay earlier. This way you would be able to collect and use cash faster!

• Run a marketing campaign to drive additional sales quickly

• Apply for business loans through a bank or find alternative lending sources

• Delay your cash outflow by using your credit card (you can also use Reap for expenses that do not accept cards)

2. Understand when you can grow

Good cash flow management allows you to better understand when you can use more funds towards growth. If you have made in $100K HKD in sales, but actual payment won’t be made until 3 months later, you may not funds to buy better equipment just yet. When you look at your cash flow over weeks and months, you'll know how much to keep on hand, and how much you can stash away or spend on growth.

Final thoughts!

Obsessing over cash flow is an important consideration regardless of the size of your business. In the long run, it may also improve your relationship with your customers and suppliers if you can more accurately assess your cash flow to your requirement for paying and receiving payments.

Hopefully, it’ll bring more peace of mind to your day to day operations and alleviate some stress!

通常,小型企業所有人將盈利當作企業運營的主要目標之一。但無論業務或產品多有創意,企業始終生存艱難。而且如果現金流管理不善,公司倒閉就在所難免了。

現金流101:您應重視現金流而非利潤的原因

作為參考,一項研究發現,82%的企業因為現金流管理不善而倒閉。尤其對於剛開始運營的中小企業(中小企業現金管理尤為困難)而言,現金流管理應伴隨業務量的增加,以及經營的持續,成為關注的重點。得出結論前,讓我們先就現金流與利潤之間的區別,做一下說明。

現金流與利潤有何區別?

現金流是衡量企業實際流入與流出資金的一個指標。衡量企業現金流最簡單的方法,就是查看企業的銀行賬戶。簡而言之,若企業銀行賬戶的期末餘額大於期初餘額,就是正現金流(反之則為負現金流)。部分常見的現金流入渠道,包括銷售與投資;現金流出渠道,則包括貨物成本、薪資及利息支付等。

另一方面,利潤這一指標則更多是一個會計學概念,可以用於撰寫報告(及編制接受審計的財務報表),卻無法讓您對企業的日常運營狀況,具有必要、詳細而深入地瞭解。

讓我們來看幾個例子

例如,您在香港開設了一家服裝公司。上個月,公司服裝銷售額為20萬港幣,而批發購入服裝的成本是8萬港幣,那麼,您所得的毛利就是12萬港幣。

計算利潤的第一步,是計算總收入,然後減去售出貨物成本,所得差額就是毛利。

毛利 = 收入 - 所提供貨物或服務的成本

          • 收入:                             200,000元港幣

          • 售出貨物成本:          -80,000元港幣

          • 毛利:                             120,000元港幣

另外,我們假設您為了實現這一收入,投入2萬港幣用於營銷。營銷費用(以及租金、設備採購、工資等)會作為營業費用,從毛利中扣除,得到的就是淨利:

           • 收入:                            200,000元港幣

          • 售出貨物成本:           -80,000元港幣

          • 毛利:                              120,000元港幣

          • 營業費用:                     -20,000元港幣

          • 淨利:                             100,000元港幣

恭喜您!現在,您公司損益表中的利潤一欄,可以填入10萬港幣了。

這樣計算利潤看起來很簡單,但用來瞭解企業經營健康狀況時,漏洞就多了。

1.    延後或拖欠付款

銷量一旦實現,這20萬港幣就記賬為收入,並體現在損益表中了。但,絕大多數企業都不會立即收到全額付款。例如,如果客戶決定每月付款5萬港幣,4個月付清,您每月就將只有5萬港幣,可用於支付其他所有需要支付的費用。我們還沒有考慮最糟糕的情況,比如兩個月後,客戶公司倒閉,您事實上就無法全額收取訂單貨款了,又該怎麼辦呢?

2.    還貸

如果您開設服裝公司的部分啓動資金是借來的,那麼,對這些貸款本金的償還,是不會體現在損益表中的。

3.    為存貨付款

如果還投入資金,用於向批發商額外購買庫存(也就是服裝),您可能會不得不先付清款,再經過一段時間後,才能實現銷售。

4.    繳稅

貴公司的淨利可以是實現了盈利的,但這是在繳稅前。繳稅會令人惋惜地讓企業收入進一步減少。

現金流只與時間有關– 因為貴公司雖然盈利,但通常需要支付其他費用。這些費用不體現在損益表中,卻會對企業造成影響。

看看我們的文章「現金仍是王道:初創企業如何管理和改善現金流

為什麼對現金流進行管理是很重要的?

1.   提高業務的可預見性

季節性,這是企業運營通常都會面臨的。冬季,滑雪場營業額提升;春節期間,餃子館生意更加興隆。良好的現金流管理流程,使企業能預見這些週期性出現的情況,並制定計劃加以應對。比如:

為客戶提供預付款打折優惠。這種方法,讓企業可以加速現金的回籠與使用;

開展營銷活動,快速提升銷量;

通過銀行申請貸款,或找到其他貸款資源;

使用信用卡付款,延遲現金流出(您還可以使用Reap,支付無法用信用卡付款的費用)。

2.   知道企業發展的時機

良好的現金流管理,讓企業可以對將更多資金投入用於發展的時機,具有更清醒地認識。如果實現了10萬港幣的銷售額,但實際到賬要在3個月後,那您就還沒有資金用於購買更先進的設備。當您數周及數月關注現金流後,就會知道可支配的資金有多少,及可留存或用於企業發展的資金有多少了。

總而言之!

無論企業規模大小,考慮緊盯現金流,都是重要的。長期來說,如果能根據收、付款需求,更準確地評估現金流,還可以密切企業與客戶,以及供應商之間的關係。

希望本文,能為您減輕一些壓力,讓您以更加愉快的心情開展企業的日常運營!

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