Why profit is like paying protection money.

Paulie Walnuts

The other day I wrote a blog about understanding the cost of time and the positive impact this can have on managing cash flow.

What are the chances someone acted on my blog and started developing a new cash management system to mitigate the cost of time on their business?! 

Anyway.

I finished my blog by stating that many small and medium enterprises in Australia were only one event away from running out of time.  In most cases a single event can totally side-swipe a business; hence my quote “everything seemed to be going so well” at the time.

Of course, it’s not ideal to keep operating a business that is only one event away from being in trouble – even if it’s an astute business totally aware of its position.

The idea is to grow out of this stage. **

Accounting profit is a numbers racket.  And like any good racket, profit is the ‘money’ you have to ‘pay’ to protect and grow your business.

Cash pays your dues.  Profit makes the business stronger.

Profit is something you never seem to actually have.  Its goes straight into the business.

Why?  It’s the cheapest source of money.  Profits are re-invested into new assets such as production capacity or IT capacity.

There will always be occasions when things are less-than-profitable for your business.  Not ideal, but this is temporarily acceptable with a well-managed cash position.  For example, Amazon made no profit for 10 years!  A bit extreme and not exactly temporary.

However, unless there is also a strong focus on how your business will return to a profitable position as quickly as possible, your business will remain in a vulnerable position and the 'racketeers' will come-a-calling.

It’s not easy.  Using up valuable resources to keep your business in a steady holding pattern, whilst at the same time also needing lots of resources to eventually break-out of the holding pattern is a tough gig.

So I hope that all helps.  In two simple blogs I’ve given you a new perspective on the cost of time to help understand the importance of cash flow.  And I’ve given a new perspective on the role profit plays on protecting and growing your business.

At all times avoid getting a visit from Paulie ‘Walnuts’ Gualtieri looking for protection money!!

**BTW- If a very mature business is only one event away from failure, then I suggest it has many other significant challenges that need to be dealt with ASAP.