It's an old business saying but so true - "Cash is King". As an accountant, my profession has all kinds of financial and accounting techniques that make adjustments to results of a company's operations. These adjustments can increase or decrease the profitability of a company "on paper". Don't misunderstand, the adjustments are necessary and most times required when preparing acceptable financial statements or tax returns. Nevertheless, when managing a business the true test of success is cash flow, measured monthly, quarterly and annually. At the end of the month, quarter and year do you have enough money to pay your bills? A company can appear to lose money because of non cash related transactions such as depreciation and amortization but still have positive cash flow and be viable and healthy.
I say "Cash is King" because it's the clearest and most definitive way of running a business but, the Retail Floral industry is unique when measuring and projecting cash flow. Holidays, deferred receivables/payables, wire service payments/receipts etc. make managing cash flow tricky. Because our industry experiences significant revenue fluctuations quarterly as well as monthly a successful shop needs to constantly control costs and overhead as well as maintain an adequate line of credit. The important part of managing your line of credit is to be certain that at the end of the year you've been able to payback whatever monies the company had drawn plus interest. This can be done if the company has positive cash flow. The only time a line of credit should increase from year to year is if it's used for a large purchase of equipment that you're paying over time
Positive or negative cash flow is a direct reflection of the profitability of the operation and most importantly the great "equalizer" of all accounting systems. - it is King! Any thoughts or questions, feel free to email me at firstname.lastname@example.org. I'd love to hear from you!