S11 E33-36 (TurboCharge Your Business) 13 Weeks to Financial Literacy: CASH FLOW VERSUS PROFIT (SHOW ME THE MONEY!) with Patty Lawrence

S11 E33-36 TurboCharge Your Business - 13 Weeks to Financial Literacy
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Welcome to TurboCharge Your Business, a show for business owners who are tired of just working IN the nuts and bolts of their businesses and ready to work ON the business itself from a big-picture, growth-oriented, strategic perspective. 

I’m Patty Lawrence: founder of TurboExecs, money finder, consulting CFO, and right hand to growth-minded CEO’s. This season is called 13 Weeks to Financial Literacy and over the course of the season, I’m teaching you everything you need to know to take your business from confused and chaotic to strategically growing with you in the driver’s seat. Before we get into this episode, you can reach me at turboexecs.com. 

CASH FLOW VERSUS PROFIT (SHOW ME THE MONEY!)

Today's show is all about cash. By the end of our time together, you'll gain an understanding of why cash is king in your business!

S11 E33 Cash Flow vs. Profit: Mythbusters
Profit is revenue minus expenses. It’s what’s left over after you’ve sold something and paid all the expenses related to selling that thing. Cash flow, however, concerns all the movement of cash in and out your of your business. 

Remember: cash functions as the fuel in your business engine. People put way more emphasis on profit in their businesses than they do cash flow, and it’s a mistake. 

I want to debunk the measures of profitability and revenue. Many people think these are the most important measures in your business, but they’re not. With profit, revenue, and cash flow together we get a much clearer picture of the health of our business. But when we only look at vanity numbers, we miss a key component. 

I would argue that cash is the most important measure in your business. It’s your business’ fuel. It gives you options. It allows you to grow, to get loans, to make choices for your expansion. 

So, how much cash do you need to have? 

Prior to COVID, people would say having 3 months of expenses was a good rule of thumb. But COVID taught us we need to have more than that on hand. We need to have at least 6 months of cash on hand for emergency use only. 

It might sound impossible to stock away that much money, but it’s not. You’ll need a plan to squirrel some money away every week. How much will you not miss out of your business? It depends on the size of your business, the money you’re generating within your business, and how much money you need to run your business. It’s different for everyone and I work with my clients on what the right number is. 

But for example, let’s say $100 a week is what you wouldn’t miss on a week in, week out basis. Set something up with your banking platform where you’re transferring it somewhere else. By the end of a year, you’re going to have a nice head start on a good balance in there. That makes it easy and consistent to create a safety net for your business. 

Another myth out there is that being profitable means being cash rich. Actually, you can be profitable and cash poor. On your income statement, you could be plenty profitable but you may have so many other requirements for cash that it drains down and you end up with not even enough for your operations. It’s critical to figure out your cash requirements so you can track and plan for them. 

Listen to “TurboCharge Your Business” on the International Business Growth Network or wherever you get podcasts and gain access to even more great resources at https://turboexecs.com/turbocharge. 

TAGS: cash flow,cash flows,cash flow statement


​S11 E34 Cash Flow vs. Profit: Defining the Differences 
Profit is not cash and cash is not profit. These are two completely different things, and you need both of them in order to be a successful business and grow. What are some of the specific differences between cash flow and profit that we look at as business owners? 

Some of the things that typically show up as profit and not so much as cash are non-cash type items that run through our profit and loss statement, particularly depreciation and amortization. These are fancy words that recognize the useful life of an asset over time. Maybe we’re paying for a vehicle over time, but what runs through our P&L statement generating a profit or loss is depreciation, which is non-cash. The full value of the vehicle goes on the balance sheet, and in the P&L statement we recognize a portion of the depreciation of that asset over its useful life. 

Say that vehicle has a useful life of 5 years. Then we’ll take roughly 1/5th of that value into account in our P&L statement as an expense each year. By the end of year 5, the vehicle will have been fully depreciated on our balance sheet. Yet each year, we’ll only recognize depreciation expense related to 1/5th of the vehicle’s value. That’s one big difference between cash flow and profit. The same goes with amortization. It’s very similar, except you’re getting an intangible asset like goodwill, patents, or other IP in your business that will depreciate over time. 

Another difference in cash flow versus profit is loans. Say you bought a vehicle and put that vehicle on your balance sheet, but you only made a down payment on it. Maybe you paid $10,000 for the $30,000 vehicle. You had $10,000 cash flowing out of the business, but zero of that was on your P&L statement. So where does it show up? The rest of the $20,000 loan will show up on the balance sheet, and the interest you pay on the loan will go on your P&L statement as an interest expense. But the actual loan payment is a cash flow item, not a P&L item. 

Those are some of the major differences we can see between cash flow and profit. We can also look at some of the types of cash flow we have for our business:

• Cash from operating activities 
• Cash from investing activities 
• Cash from financing activities (usually for larger companies) 

 
Listen to TurboCharge Your Business on the International Business Growth Network or wherever you get podcasts and gain access to even more great resources at https://turboexecs.com/turbocharge. 

TAGS: cash flow,cash flows,cash flow statement

S11 E35 End of Year Tax Maneuvers
End of year tax maneuvers are some of the moves you can take advantage of with some help from your tax professional to lower your tax liability for the end of the year. 

You can take these actions now, in the current year, to affect your tax calculation for April. What does that actually look like? How do we actually do that and what are some of the kinds of things that we're talking about here?

I’m not a tax professional, but I have enough experience working with tax professionals and business owners to bridge the two together because it’s important to me to protect my clients from the information gap they might get from their tax professional. The devil’s in the details, and they may need a little bit more translation.

If you’re working with us, we would be projecting or forecasting a full year P&L for you. That’s a tool you can provide to your tax professional so they can see where your business is going to finish. Depending on what kind of legal entity your business is and how you’re organized from a tax standpoint, these numbers will come through and be reported. 

Here are some ideas and concepts to talk about with your tax professional as they go into end of year tax planning:

• Projecting your full year profit and loss statement 
• Understand what your balance sheet looks like 
• The cash level in your business as of end of year 
• Optimize retirement contributions 
• Accelerate or defer spending in your business
• Review your accounts receivable for bad debts 
• Contribute to an HSA
• Increase charitable contributions

Knowing your cash position is important so you can take advantage of maneuvers or not based on your cash position. But I can’t stress this enough: some of these maneuvers don’t require cash. If your tax professional says go buy a vehicle, that doesn’t mean you have to pay cash for it. You can put down the down payment and finance the rest because from a tax perspective, you might be able to take advantage of accelerated or bonus depreciation, which is non-cash. If you buy a vehicle, you should be paying for it over the time it earns you revenue. If you don’t, you can end up in a cash crunch (and maybe not have enough cash on hand for your tax bill).

Carefully consider these maneuvers in relationship to your cash position, and remember to always consult your tax professional for your specific circumstances.

Listen to TurboCharge Your Business on the International Business Growth Network or wherever you get podcasts and gain access to even more great resources at https://turboexecs.com/turbocharge. 

TAGS: cash flow,cash flows,cash flow statement

S11 E36 Operating Profit vs Tax Return 
Our focus at TurboExecs is making business owners aware of how they can make more money and where it may be hiding in their business. My hope for you is that you make as much money as you possibly can – as much operating profit as you can. 

Operating profit translates into cash flow, because operating profit drives cash flow. What does that have to do with your tax return? Well, the more profit you make, the more tax liability you may have on your tax return. 

I’m not a tax professional, but there are tax professionals out there who are going to give you the best and most personalized tax advice. I work with people like that all the time, so I know they’re out there and they're there to serve you. I invite you to seek them out. I’ll give you ideas and you need to take those ideas and concepts and run them by your tax professional. 

What I will tell you is that your tax return is what you ultimately have to pay the IRS from, in addition to any state and local tax obligations. Those are the drivers, but your P&L statement is the starting point. Why does that matter? It makes a lot of difference what you have in there and the decisions you make in your operating profit versus your tax return. 

There are some end of year tax maneuvers we discussed in the last episode that can lower your taxes. If you’re making those choices, it’s important that: 

• We try to get you as high operating profit as possible. 
• We make decisions for the business that won’t impact you as a going concern (i.e. that won’t put you out of business, interrupt your ability to continue making operating profit, etc.)

You need to make these decisions with a couple of tools in front of you:

• Your projected full year P&L 
• Your cash position at the end of the year 

Whatever you choose is going to carry forward and have a ripple effect into the future. It’s either going to harm you or help you align with your mission, vision, and values. If a decision gets you a deduction on your tax return but makes you worse off than you were before, it’s not worth doing. The juice isn’t worth the squeeze. 

Let’s be very cognizant of what’s being proposed to us and what the benefits are. Ask questions, ask why. Be curious about what the impact could be. That's the best thing you can do and the best way you can protect yourself, your company, and your operating profit going forward.


TAGS: cash flow,cash flows,cash flow statement

TurboCharge Your Business is a show for business owners who are tired of just working IN the nuts and bolts of their businesses and ready to work ON the business itself from a big-picture, growth-oriented, strategic perspective.

Listen to TurboCharge Your Business on the International Business Growth Network or wherever you get podcasts and gain access to even more great resources at https://turboexecs.com/turbocharge. 

Patty Lawrence is a money finder, consulting CFO, right hand to growth-minded CEOs, and founder of TurboExecs. At TurboExecs, she works with $2M+ professional services and non-profit organizations that struggle to get the timely & accurate financial reports they need to function, often because one person holds this information hostage or lacks the skills required to do the work.

Through outsourced accounting and CFO services, she and her team reveal the story behind the numbers so leaders confidently can make data-driven decisions that allow them to leap forward, trusting they have the team and finances in place for manageable, profitable growth. As a result, TurboExecs’ clients typically increase the bottom line by at least 15% and feel in full control of their finances and results.

Connect with TurboExecs at turboexecs.com. Continue the conversation with Patty on LinkedIn.

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