The primary goal of private sector companies, as everyone knows, is to maximize profit. Whether large, small, or SME, this common goal is at the forefront of every company and comes at the beginning of the reasons for establishing a business. This natural purpose requires the use of many processes, efforts, and resources alongside funds. While classical economics is based on the elements of land, capital, labor, and technology for production, in today's world, the internet has taken the place of land, online environments have taken the place of technology, capital-free business models have developed, and the labor intensity required for business has also decreased. This situation creates types of businesses that make profit maximization more attractive.
However, if we come to our main topic, in both the classical understanding and the innovative environment, income and expense-based profit calculations are made in businesses, and decisions are primarily made accordingly. This is quite natural and necessary. However, sometimes there seem to be confusions in the performance evaluations of some companies. For example, while the accountant presents financial reports with profit and taxes to the boss, the boss may ask, "But there's no money in the company, where is the profit?"
Technically interpreting this situation, the most prominent problem is the inconsistency between the Income Statement and the Profit and Cash Flow. Most companies make payments, purchases, etc., with the existing total cash and/or existing bank financing and seem to be sustaining their lives because they provide a certain amount of turnover income. This situation is essentially like a person standing but having an internal illness. In other words, the skeleton and anatomy are standing, but the blood flow is not healthy, and this situation is often not visible from the outside. Of course, it is worth noting that this situation may have different reasons such as off-the-record expenses, unregistered cash usage, unregistered commissions, etc., and a final analysis can be reached.
At this point, with the contribution of third-party financial experts and consultants, the problems in the stages mentioned above can be identified, improvements can be made by clarification. If surgical intervention is necessary for the treatment of the disease, it should be performed, or improvements should be achieved with time-dependent treatments. Therefore, every company should track both Profit and Cash Flow, and decisions should be made based on the available data with objective and collective reasoning. In this way, a healthy life can be maintained with decisions that are close to the truth. Wishing everyone profitable and cash-rich days.
Dr. Bilinç Dolmacı
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