The short answer – Abundant profitability does produce abundant cash in the bank but it takes a while and is a result of following these rules.
1) There are no draws or distributions to pull cash out of the business.
2) The business doesn’t have wide swings in revenue within the year.
3) The business is consistently profitable.
4) There are no payments on long term debt.
5) Capital expenditures are financed, not paid for with cash.
6) Accounts receivable and/or inventory doesn’t grow (a/r is collected under normal terms).
Break any of these rules and it will impact the conversion of profit into cash.
Profit does help cash as long as there aren’t other uses for that cash. Have a great week and balance your cash needs with your projected growth levels.
The Business Growth Coach & Prophet of Profits
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