Sales, profit and cash: three different questions

Sales reflect the commercial activity recorded under its agreed terms. On their own, they do not tell you how much it cost to deliver that activity or how much cash has been collected. You need to understand what sits behind the number: the terms, costs and commitments associated with each transaction.

Profit compares revenue with the relevant costs. It helps you understand how much value remains after paying the costs of delivering it. Margins may differ between products or channels, so increasing volume also requires understanding its effect on profitability.

Liquidity concerns available cash and the timing of cash flows. In an illustrative example, revenue of 100,000 and costs of 85,000 produce a profit of 15,000. But collecting 30,000 while paying out 85,000 for the same activity produces a negative cash flow of 55,000. This shows why timing also needs to be monitored.

Before accepting a larger order, ask: what must we pay before the customer pays us? What capacity will we need? What happens if there is a delay or a change? Connect the decision to sales, operations and commercial terms so you can see what growth will require.

Institutional engineering helps connect financial information to decisions about operations, pricing and expansion. Discuss with Twindix where you need more clarity and which indicators and practices you need to build at your current stage.