Xendoo delivers online bookkeeping, accounting, and tax solutions to small businesses with fewer than 20 employees.

Got Profits?
Major corporations utilize the Power of 3 as a standard operating practice to increase productivity and profitability over time. Although it is not widely known in the traditional small business environment (specifically, businesses with less than 30 employees), the Power of 3 could prove to be incredibly rewarding for small business owners! In understanding the Power of 3, it is helpful to understand the difference between profit and cash flow. From there, you will be able to improve your profit and cash flow and have visibility into your business financials. Whether you sell products or time, utilizing the Power of 3 will exponentially increase your profitability!

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Profit vs. Cash Flow:
Profit and cash flow are both key indicators of business health, just in different ways. Profit demonstrates immediate and short-term success. On the other hand, cash flow informs the long-term financial outlook of a company. Gross profit is the profit of your business after deducting the cost it takes to provide the goods or services. Operating profit is calculated by subtracting operating expenses from gross profit. Net profit is the profit that remains after subtracting everything, including taxes and operating expenses (rent, payroll, utilities, etc). Profit, also referred to as Net Income, is the difference between income and expenses. There are three types of profit: gross, operating, and net profit.

Cash flow is defined as all of the money that flows into and out of your business over a specific period of time. Positive cash flow means there is more money coming in than going out, while negative cash flow means that there is more money going out than coming in. Profit is not cash flow. However, being aware of when cash flows into and out of your business will enable you to make informed financial decisions at the right time, so that you do not run out of cash. The more visibility you have into your cash flow, the more profitable your business will become!
Improving Profit and Cash Flow If you struggle with cash flow,
you are not alone. It is a common struggle for small business owners! According to a U.S. Bank study:
93% of small business owners run their business from their bank account. This means that they monitor their bank account balance, but do not consider the dollars they have in inventory, or other expenses that are on the horizon. Monthly financials that are prepared by a professional will provide these insights.

Of the businesses that fail, 82% that close their doors are actually profitable, but do not have visibility into their cash flow. Perhaps their bookkeeping team was not delivering reports on time, or the books were not being done at all. In either case, this lack of visibility is preventable. 46% of those businesses failed either because their prices were too low, their customers did not pay them on time, or they incurred expenses that they could not cover due to lack of cash.

Businesses thrive when business owners have financial visibility. As the best practice, financials should be reviewed monthly to ensure business goals are being met, plan for tax season, and make informed, data-driven decisions. Here are some steps you can take to maintain a healthy cash flow and increase your profitability: