What Does It Mean to Be Cash Flow Positive?

Being cash flow positive means the money coming into your business is more than what’s going out. In other words, you’re receiving more cash than you’re spending on operations, supplier payments, loan repayments, and other expenses.

Because cash flow doesn’t equal profitability.
Cash flow measures liquidity, how much cash is available at any given moment but it does not account for the bigger picture of franchise profitability.

Cash Flow vs Profit: Key Differences

- Cash Flow tracks the actual movement of money in and out of your business. If you’re cash flow positive, you can pay bills, suppliers, and employees on time.
- Profit measures how much money is left after covering all expenses.

Why Your Franchise Can Be Cash Flow Positive But Not Profitable

Here’s why it happens:

1. Debt Repayments: If you took out a loan, those monthly repayments are cash outflows but not considered operating expenses. So, even if you’re generating cash, if a significant portion is going toward loan repayments, your profits may still be negative.
2. Unmanaged Costs: It’s possible that your costs such as rent, labor, or inventory are eating up profits. This could lead to cash flow positivity but still no profitability if you're not tracking, analysing and fine tuning costs effectively.
3. Investment in Growth: If you’re reinvesting cash into expanding or improving your business (new equipment, renovation, hiring), it might create short-term positive cash flow but result in negative profit margins in the short term.

How Can You Make Sure Your Franchise Is Profitable?

The key is to track both cash flow and profitability metrics consistently. It's essential to regularly review your P&L (Profit & Loss) statement and break-even point, which I recommend you do at least once a week, ensuring that you have enough profit after covering all your expenses.

If you are not on top of your finances, you need to download my Guide for the FRANCHISEE. It will explain how to break down your profit and loss and other essential financial metrics. Make sure to take note of my working capital and loan account explanations included in the guide to avoid the common mistake of double taxation and to set yourself up for sustainable growth.

Practical Steps to Ensure Profitability

1. Understand Your Break-Even Point (BEP): Knowing your break-even point tells you exactly how much revenue you need to cover your fixed costs before you start making a profit. Make sure to calculate it for every location and regularly revisit it.
2. Monitor Your Working Capital: Ensure you have enough liquidity to handle operational costs without overstretching your cash flow.
3. Review Your P&L Weekly: Regular P&L reviews will keep you on track, letting you spot the problems early and help you make informed decisions. As emphasized in the Guide for the FRANCHISEE, reviewing your P&L regularly can save you from financial pitfalls.

Next Steps: Your Financial Health Check

If you’re uncertain about your numbers or want more clarity on profitability versus cash flow, it’s crucial to take action now. Don’t wait for your next quarterly report. Start analyzing your business metrics on a weekly basis for better control.

Ready to Get Your Finances in Shape?

If this article resonated with you, then it’s time to take the next step. Whether you're struggling with your financial strategy or simply want more clarity, I encourage you to download the full Guide for the FRANCHISEE for FREE. In this guide, you’ll find deeper insights into managing profitability and cash flow, along with practical tools to keep you on track.

Download the full guide now to get started