Did you know that many profitable businesses go broke every year?
The first time I heard that I thought it was a joke.
“How could a profitable business go broke?”
It sounded wrong and backwards.
But think about it.
Businesses go broke when they run out of cash, not when they run out of profit.
You can have a really “profitable” business, but if your cash flow cycle is negative, you can run out of cash fast.
Counter to that…
Businesses that are “unprofitable” can keep going if they have the ability to keep producing cash.
You cant pay your bills with profit.
Over the years, I have met many business owners who run their businesses via their P&L with little consideration for their cash flow cycle.
In turn, they tend to struggle to grow the business.
Never able to invest enough into their business to get the…
– Staff they need
– Stock they need
– Equipment they need
– Marketing they need
They will hit a level and just stay there.
Never realising it’s their financial management skills holding them back.
They never take the time to dig deeper and understand how they got to this place or what they can do about it.
They will just continually stay confused as to why there is not more cash in the bank account.
Knowing your cash flow cycle and how quickly you can turn a sale into free cash flow is just one of the many things that come into good financial management.
In this week’s episode of the podcast, Grant and I do a deep dive into what good financial management looks like.
We also share some of our own processes and thinking.
In my opinion, financial management is a full-stack skill.
It’s dangerous to run a business without it.
I would highly encourage it’s something you invest in learning.
All information we share is NOT financial or investment advice and is purely intended for entertainment and educational purposes only. Always seek professional advice before acting on any financial decision.
00:00 Welcome to Business and Investing
01:16 The challenge for business owners when managing finances
06:10 How well should business owners understand their finances
09:53 The Profit First system in financial management
17:20 Interpreting and implementing financial advice
19:00 Consequences of poor financial management in business
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