When it comes to running a company, there is a mantra that the budding executive should keep shouting in their head: “...it’s all about the cashflow dummy...” And this is why, one of the props you need for a successful operation, is sound small business insurance.
What most people learn about business is how to make a profit. You sell something, someone gives you some money, you take away what is cost to make what you’ve sold, plus the other costs, and you arrive at a profit. But those that understand the need for small business insurance, also understand that being profitable does not guarantee success.
Profitability is a theoretical accounting term. All things being well, a profit is made when the figures add up on paper. But let’s say you run a business which invoices the people you buy from and gives them, for argument sake, a couple of weeks to pay. Once the product is sold, you have a theoretical profit (if it’s a loss, then you’ve got problems and even great small business insurance won’t help you) and that gets recorded.
But although you’ve made a profit, you don’t have any money in your hands for 14 days. And if, like most purchasers, they take longer to pay, then 14 days can stretch to 30 days, and so on. In other words, on that particular product you have negative cashflow (no cash). You can’t take the promise of that customer payment (unless you use invoice factoring, or have an understanding bank) to buy anything yourself.
Cash is king and pays the bills. Paper profits look good, but pay no-one. So always get good small business insurance to ensure you have all bases covered if there’s a problem.
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