Wednesday, December 5, 2007

Cash Flows Rules:

Tim Berry has a really great post about Cash Flow.

“Profits aren't cash; they're accounting. And accounting is a lot more creative than you think. You can't pay bills with profits. Actually profits can lull you to sleep. If you pay your bills and your customers don't, it's suddenly business hell. You can make profits without making any money.”

Profits aren’t cash. That is the most difficult lesson for restaurateurs to learn. Even after three or four locations, the perception is still that if the restaurant is making “profits”, then everything will be ok. When auditors review your financial record, they do not care what your profits are, all auditors want to see is the cash flow. “follow the cash” is the popular mantra because that is the real lifeblood of the business. Income statements reports on trends in the business, balance sheets detail the actual health of the business. Please take Tim rules to heart, “you can’t pay bills with profits”

Cash Flow Rules!