Money: King, Queen and Jester 8 Replies Tweet Leave a comment and tell me which of the following is the King, which is the Queen and which is the Jester? Revenue Profits Cash Flow I don’t seem to remember this discussion in my MBA classes.
I’ll take a stab at it… I would say cash flow is King, then Profit is queen, and revenue is the jester.
My theory is that if I have no cash flow, I feel frustrated and crabby because I can’t pay my bills. I waffle thinking profit should be king because if you are profiting you should also have cash flow but tons of revenue doesn’t necessarily mean anything if you have no cash flow.
And I don’t have an MBA.
If I understand my accountant correctly, Cash Flow is King; it is essential to keep the money coming in and managing where it all goes. Next, I would put Revenue as Queen; the amount of money you make on your sales is a strong indicator of your viability. Finally, the illusive Jester is Profit. You simply cannot entertain a profit unless you have your King and Queen in place, and whether or not you have profit is a function of how efficiently you are collecting your Revenue (not always a simple matter of sales, but also of operational efficiency).
My dear accountant and good friend taught me this:
Turnover (revenue) is Vanity,
Profit is Sanity
Cash is King
(And we all know big companies turning over billions and billions and still going bust!)
Turnover without a decent profit is one certain way to get in trouble. You could go for the highest market share, but you’re way better off to go for the higher “wallet” share 😉
Karin H (Keep It Simple Sweetheart, specially in business)
Took me a little while to learn this (the hard way!) as a small biz owner but Cash Flow is King for me now, then margin then revenue.
The goal is not “sales” the goal is selling to someone who can/will pay you a rate that allows your biz to become or stay viable etc
Revenue makes everyone feel good. Growing the top line of the business just feels good and right. ?However, increasing revenue without profit or cash flow just means going bankrupt faster. So, I’d say Revenue is the jester – it feels good, but does not sustain.
Cash flow is incredibly important. Without cash flow all the rest falls apart – cant pay the bills, payroll, etc. However, you can have a positive cash flow but still be selling your product at a price below your cost. So, you are simply converting an asset like inventory into cash. If so, cash flow wont sustain in the long run.
Profit is essential in the long run. But, without a positive cash flow the business could be building a great balance sheet and not be able to pay the bills. The difference is liquidity (cash flow) vs profitability. One is the short term life flow to a business, the other long term. Either one could kill the business.
I’d say that Revenue is King. Everyone gets their status through the King, and Revenue starts off this cycle with a sale.
Cash Flow is the Jester, not because it is unimportant. On the contrary it is very important. With out it the creditors go nuts. Rather, it’s the most important after the King. Why?
Because Profit is Queen. The Queen must be pleased or she throws a tantrum and annoys the King, so the Cash Flow handles the troubles of the court (bills) and pleases the Queen (profit).
And that is the Court of Moola.
It is one of those things that seems to run contrary to rational thinking…
Cash Flow – King
Revenue – Queen
Profits – Jester
I would argue however, that perhaps it is this very contrary thinking that has the world economy in such poor condition.
I am Chris Everingham and I approve this Message.
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