Question 1

What is the difference between profit and cash?

Accepted Answer

Profit is what the income statement shows. Cash is what actually moves in and out of the bank account. Profitable companies can go bankrupt from lack of cash.

Question 2

How do you calculate a product's real margin?

Accepted Answer

The real margin accounts for variable costs, allocated fixed costs, direct labor, and every input involved in production or delivering the service.

Question 3

What is the break-even point?

Accepted Answer

It's the minimum amount a company needs to bill to avoid a loss. Without it, financial management happens in the dark.

Question 4

Why does cash disappear even when sales are good?

Accepted Answer

The technical reason is the cash cycle: the time between paying suppliers, producing, selling, and collecting from customers. The longer the cycle, the more working capital is needed.

Question 5

How do I know how much my business is worth?

Accepted Answer

A business's value is what the market would pay for it, based on metrics like cash generation, profit, assets, and industry comparables.

Starting Point

Do you know the difference between profit and cash?

Do you know how to calculate the real margin of your main product?

Do you know how much you need to bill this month to avoid a loss?

Do you know why cash sometimes disappears even when sales are strong?

Do you know how much your business is worth?