Cash flow, revenue, and profits are three financial measures that are important to understand. Managing business finances is no easy task, but the more you know the better you can manage. As a business owner it’s critical to understand operations and pay attention to details, thus always looking for ways to improve.
At Kickfuther, we’re committed to empowering business owners and helping them maximize the potential of their company. Through our platform business owners can obtain inventory funding to improve cash flow. Before we dive into the details though, let’s invest some time reviewing cash flow, revenue, and profit and the differences between them.
What is cash flow, and how does it differ from revenue and profit?
As a business owner, or future business owner, you’ll need to understand finances – or hire a trusted party to take care of them. Whether you manage them or hire someone else, at the minimum you should know some key measures: cash flow, revenue, and profit.
First let’s review revenue vs. profit.
Revenue is business income, plain and simple. A business can have large amounts of revenue, and while it’s important to know what revenues are, revenue does not mean a business is profitable.
Profit is the income of a business after deducting expenses from the revenue or net earnings. Obviously, profitability is a key metric and it’s what will keep businesses afloat and growing.
Now, let’s review cash flow and how it’s different from revenue and profit. Cash flow is the net amount of cash that comes into and out of a business. A bit more challenging to manage, but probably the most important thing to manage on a day-to-day basis. A business needs a healthy amount of cash flow to cover expenses on the day-to-day. This can get tricky as accounts receivable can be slow to come and expenses need to be covered on-time. Oftentimes businesses use loans or financing to improve cash flow.
Why is cash flow important for businesses, and how does it impact their operations?
Businesses need cash on hand to cover day-to-day expenses as well as growth and expansion, and everything in between. When businesses make sales the money usually does not just appear instantly in their account. In some cases it may not even come through in a few days.
For example, a construction company may sign a project, but only receive a deposit to start working. Therefore, they will need funds to cover materials, equipment, labor and everything else necessary to carry out the project. While they may get paid in milestones as they go, you can see where the cash flow dilemma can come into play here.
Businesses that do not have healthy cash flow may fall behind on expenses, miss out on opportunity, or potentially even fail. Business owners must find ways to maintain a healthy cash flow. One way to do so is by utilizing inventory financing.
How is revenue defined, and what does it represent for a company?
Revenue is the total amount of money generated from business operations, typically measured in set time frames such as annual or semi-annual. Revenue is defined by profit and total earnings. It represents the total amount of financial gain from sales and or services for a business, but does not represent profitability.
What factors can influence a company’s cash flow and revenue?
Revenue is primarily influenced by sales and or services whereas cash flow is influenced by a variety of factors. Below is a list of factors that can influence cash flow.
- Accounts receivable
- Accounts payable
- Operating expenses
How is profit calculated, and what does it indicate about a business?
While it’s exciting to watch revenue grow, profit is a whole different ball game. When profit starts to grow you are really in the green. Profit is revenue minus total expenses. It indicates how much your business has earned after expenses.
How do cash flow, revenue, and profit contribute to the overall financial health of a business?
First off a business needs to have healthy revenues to start. If they are not generating revenue from sales, they will struggle to turn a profit. While there are several variables between the revenue and the profit, you’ll want to track these high level measurements to ensure finances are healthy. Whether you have profits or not you should always monitor expenses as well to ensure your business is operating efficiently. Improving efficiency can increase profits, and even revenues too. The last part of the equation is cash flow. Healthy cash flows are an extremely important part of a financially sound business. Just as your personal account needs to have funds in it to cover your bills and expenses when they are due or needed, business accounts are no different. However, the money coming into a business is not as simple as getting paid every Friday. Cash flows typically need to be constantly evaluated to ensure they are properly managed. A cash flow deficit can cause financial hardship for businesses.
Common challenges businesses face in managing cash flow, revenue, and profit
Managing cash flow is an art. It can take time to perfect the formula, so be patient. Becoming more aware of ways to improve cash flow is a proactive way to manage cash flows. Here are some common challenges businesses face in managing cash flow which can trickle down to revenue and profit.
- Lack of cash reserves
- “Wing it” approach (no plan)
- Growing too fast
- High expenses and or poor management
- Inadequate pricing models
- Delayed payment processing
- Late payments from accounts receivable or customers
- Too much inventory
What are some strategies businesses can employ to increase their revenue and profit while maintaining a healthy cash flow?
Healthier revenues and profits can contribute to healthy cash flows. Here are a few strategies to consider to increase revenue and profit while maintaining healthy cash flow.
- Evaluate pricing models (if possible raise prices to boost revenue and hopefully profit too)
- Analyze expenses (determine where you can cut back)
- Get inventory funding (stock more inventory to drive sales and use funding to free up cash flow)
How Kickfurther can help
CPG (consumer packaged goods) companies often encounter cash flow inconsistencies or deficits due to high inventory costs. The action to counteract this challenge is often inventory financing. While inventory financing can be a smart solution, you may already be aware of the high costs and strict requirements that come along with it. Frustrated yet determined, our founder once struggled to obtain affordable inventory financing that worked for his small business. As a true entrepreneur, he decided to solve the problem he faced for other business owners facing the same one.
Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.
- No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
- Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
- Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
- Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. And by funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.
To recap, revenue, profit, and cash flow are all different, but are equally important to monitor. Inventory funding is one way to drive sales thus increasing revenue and profit all the while contributing to healthier cash flow. We encourage business owners to dive in and understand where money is going and coming from. It’s important to invest in ensuring your business maintains healthy finances. If inventory funding can help, visit Kickfurther today to create a free business profile.