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Profits don’t matter.

Am I nuts?  Maybe, but let me explain. 

Profits, often referred to as earnings or net income, are an accounting measure meant to measure business performance.  If profits were the end goal, the standard set of financial statements would not include a cash flow statement.

You can’t pay people or bills with profits, only with cash.  Have you ever put profits in your bank account?   Or written a check out to ‘Profits’?  I would bet that all of you have at some time written a check out to ‘Cash’. 

As for what you take home out of your business, it is still only cash that matters.  You see, if you take more cash out of the business, that cash has to come from somewhere.  And usually, it is in the form of debt.  And what is debt?  It is a claim to the assets of the business.  Debt reduces the net assets or equity, which in economist’s terms is wealth.

Wealth comes from cash, not profits.  Generate cash to create wealth. 

Tracking and planning for your business’s cash flow is not a luxury, but a necessity. 

Cash and only cash matters in the end.