Money. You either LOVE talking about it or you HATE it. But if you run a business, it's a subject you will have to face up to, whether you like it or not.
So we're here to help a little bit: debunking some terminology, common misconceptions and how you can boost those profits.
In this blog post we will be talking about:
Cash terminology
THAT 10k month myth
Why Cash is King, always.
Ready? Here goes...
Confused? No more...
Do you go a little cross-eyed when looking at information about revenue, profit, turnover, income and cashflow?
Maybe after a conversation with your accountant, your mind is a bit blown.
I totally get it!
But when it comes to your business and its finances, knowing what's what is vitally important. It lets you know exactly what’s going on!
So, let's turn any confusion into certainty. We’re going to discuss 3 of the most commonly confused terms about cash:
Revenue: aka Sales, Income or Turnover is ONLY the amount of money that has been brought into your business by selling your products and services. Literally just the sales you've made.
Profit: The simple sum of taking all the money coming in (Revenue), minus all the money going out (Expenses). This is then your profit. You can't see profit from looking at your bank balance; you need to do the sums OR look at a dedicated profit & loss report.
Cashflow: The amount of cash available in your business bank account at any given time, seen in your current bank balance. Each month, a company can make a profit BUT never have any cash available for addition purchases or expenses. This is why cashflow is SO important.
There is a common belief that profits and cashflow are the same.
Guess what? They aren't.
THAT 10k month myth & why cash is king
So, let’s talk about the infamous “10K” month.
We want to tell you the truth, the whole truth and nothing but the truth! So here are some truths Business owners NEED to know:
1. Generally, 10K doesn't mean 10K. It means revenue, turnover, money BEFORE expenses.
2. Making 10K a month consistently will cost you a lot in TAX.
VAT, NI, Income Tax, Corporation Tax - no matter how your business is structured, you'll be paying out a pretty penny.
3. The more money you make, the more you spend doing so. It's a fact of life. Employment, outsourcing, expenses...you're going to be spending.
4. The journey to 10K months looks different to different business types. It's not a one size fits all.
For example:
If you’re a landscaper, you'll hit 10K quick because of materials.
If you’re an online service provider, 10K may come, but not usually in the first month of trading. See what I mean?
5. In reality, when it comes to business, how much cash you have left AFTER all the expenses, that is all that matters.
My point being, the next time you come across the whole "10K month" thing, remember that 10K doesn't mean £10K, turnover is vanity and one-size does not fit all.
Now you may say “Yes, I just want to make 4-figure months, tell me how!"
More revenue, sales, turnover does NOT mean more success. And it certainly doesn’t mean that having 4-figure months will, at some point, mean you have actually made a profit, or more importantly, give you a juicy supply of cash in your bank account.
Because cash really is KING.
No amount of talent, genius, passion or skill will change that reality.
You can turnover 10k in a month but still walk away, having lost money and still struggling to pay basic business expenses.
So, what can you do to improve your cash flow?
Remember that while running your business, no matter its size, turnover is somewhat irrelevant. Yes, I said it. Your task is to maximise profit but really focus on keeping that cash flow positive, organically.
One way you can do that: look at limiting how much money you spend. Don’t think it’s possible?
Come back for the next Confab moment where we will dig a little deeper.
In the meantime, however much you are making in your business right now, please keep on going because you are SMASHING it.
We’re here with friendly advice so if you have a question, why wait? Talk to us today.
Don’t forget to save this blog for later so you're never confused again!
PS. We broached the importance of cashflow on social media a while ago. Did you see our IGTV video? The video is highlighted in our Education section of our Instagram @middletonpaservices and starts "So I know it's 7 minutes past 7 on a Thursday night"... Dedicated or what?!