Profit is a Must but Cash is King – and One Follows the Other

Cash is king – such a cliché, but so true.

Cash is the blood the feeds the organs of the organisation, however cash only follows results!

If we have (real) profits the cash surpluses will lead to healthy positive cash balances.

If on the other hand, our reported profits are not so real or worse still, losses, then cash balances will deplete.

So far we haven’t told you anything you don’t already know – there is often a difference between real profit and reported profit.


Today we need to take a quick look at the main differences between profit and positive cashflow

Pie Chart


Capital Repayments

In our profit and loss account we only account for the interest on our loans as this is the cost of “buying” money.  Paying the actual amount we borrowed back is not a cost, it is just repaying that which we received.


VAT (Net Sales Tax) exists outside of our trading, profit and loss account.

It is pretty much where our government free load on us to be their cash collector and when we cannot achieve their collection targets they impose many penalties and penal interest rates.

Timing Differences

We can have a super month in sales and yet no money.  We offer our customers, (clients, guests, etc..) credit, which means of course that while we work or supply product today, we do not get paid today.

Instead, we issue a sales invoice and account for this sale as a plus in our Profit & Loss Account.

However, the “plus” will only come into our cash flow when we receive payment.

“Hey we had a great month of sales, but when will we get paid?”  – sound familiar?

Of course, on the other side we buy the product(s) we are selling today, but we do not pay for them today.

Yet the cost of the products we sell are taken into the Profit & Loss Account.

(We will re-visit this topic from Credit Risk point of view later – for now I hope the timing differences are a little clearer and have helped to reconcile part of the difference between P&L and Cashflow. 

Capital Investment – Purchase of Fixed Assets

In order to run a business we will need items of a capital nature.

For example, a restaurant will need to invest in a kitchen and all the equipment required for a commercial kitchen as well as the tables, chairs, the soft furnishings and the rest of the items (lighting) that are required to create the atmosphere.

However, while we have to pay for these items of equipment now, the cost of these items only hits the P&L over a period of years via a depreciation journal.

The reason for this is that these items will be of economic use for a period of greater than one year, or our average accounting period.

Therefore, while we pay for this now our P&L only gets to see part of this cost each year over its deemed useful economic life.

Payment of Historic / Legacy Debts

This is a very common place to see profits being swallowed up.

Or worse, the debts you owe from better times.

Legacy debt can come in many guises.

Revenue debt, Bank debt, creditor debt.  All are pretty unforgiving.

Legacy debt is generally a result of a decline in the economic environment.

And this decline can be rapid.  As recently as 2008 Ireland saw its construction industry shut down overnight.

And the rest is history. 

Introduction of New Loan or Owner Capital (funds)

This is, for a change, a positive cash effect that does not go near our P&L.

This is an injection of cash either from a bank or from the owners.

It can enter the business as a director loan (my preferred route) or an increase in owner’s equity.

For the moment it is only important to understand that this will positively affect the cash flow while having no direct immediate effect on the P&L.

Cash goes up, profit or loss does not move.

It is a balance sheet item.


In order to better understand the impact all of these items have on the cashflow, we prepare a three month cashflow projection so as we can foresee any times when we might need a cash injection or even better, when we might have some extra cash to spend. This is a crucial tool which enables business owners to ensure smooth operations on a continuous basis – the last thing a business needs is suppliers cancelling orders or cancelling credit terms. Call us now on 01-4608090 to discuss how we can help you ….improve business.

Funding Your Growth

On the back of last weeks post and the resulting growth across all our clients, it is becoming very evident that the majority of our clients require working capital funding. In other words, we need banks to help fund the growth in our day to day operations.

What does this mean?

As we grow and primarily as a result of credit terms, the gap between invoicing and cash receipts expands. As the teams grow, our labour cost increases putting strain on our cash flow. This is where we come in. With proper reporting and well thought out substantiated forecasting we are finding that the banks are very receptive to supporting our clients.

As your accountants we work to ensure that the banks are furnished with everything they need to get the financing approved. It is only through our rolling forecasting systems that we foresee any cash constraints well in advance and plan for them

If your growth is being hindered by lack of funding or proper regular financial information, call us now to help get the wheels back in motion.

Q1 – The Results Are In

Q1 results are in for all of our clients and confirming yet again our service contributes to our clients bottom line. From hotels and restaurants, from retail to architectural practices and beyond, all of our clients in all their industries continue to see good growth in their sales and well maintained costs, yielding improved profits.

But don’t take our word for it, see what our clients say:

Alan and his team came on board with me a little over 2 years ago while still in the in the depths of the recession.
During their time here we have improved the reporting models and reporting time frames. We now chase 7 key KPI’s on a weekly basis and for 2016 this has moved to daily.

The cash flow management of the business has improved over the last two plus years and we have not used an overdraft in that time.
I find that Alan challenges all the budgets and the actuals to come with the results needed to run the business. We are firm believers here, in that if it is not measured it does not get done, and I find that Alan and his team share our belief.
My experience with Alan and his team is that they have a brilliant work ethic, are very accurate and are very willing to get involved to solve problems within the constraints of the business.
I believe that Alan and his team could be an asset to any business.

John O’Neill
Hamlet Court Hotel


Please follow the link to see what our clients are saying:

Results Results Results

Late last year we issued a post on key questions we ask our new clients (see below).  While all of our clients see and understand the benefits of having their numbers properly managed, it is our new clients (in the last 12 months) that are now experiencing these benefits. The true power of this information on an ongoing basis is now evident to these clients, as we have seen good growth on the top line and more importantly, expansion of their gross margin. We see this as a positive result.


And as a quick reminder the key questions were:

  • The top-line numbers we are expecting to hear will be sales and how they compare to the previous year, ie. Are they up or down?
  • Gross margin and how this is performing relative to the previous year?
  • Operating/overhead expenses – can we explain any significant shift in these under the respective headings?
  • Current cash tied up in stock?
  • Current debtors position & cash collection target for the coming month?
  • Bank position?
  • How are we performing with our creditors?
  • What are our various tax liabilities?

Every one of Aurora’s clients can answer these basic questions at a glance. Every one of our clients have at their disposal a set of monthly management accounts that answer all of the above.

However, it is our experience that most small businesses cannot answer all or indeed any of the basic questions outlined above, before working with Aurora Accounting & Business Services.

Have a listen to what one of our clients has to say!

We would love to hear some of your thoughts & comments. Please follow us at: Aurora Accounting on Linkedin

Aurora Clients Working Together


Sealing the Deal

Jeff (MD Fiberseal) and Mo (GM Hamlet Court Hotel) signing off on the carpet cleaning & stain protection contract for the Hamlet Court Hotel. Just a typical example of how our clients can offer complimentary services to each other.

They are pictured in the brand new Executive Meeting Room in the Hamlet Court Hotel. We are very proud that our clients are working together and delighted that this could be facilitated through our “Clients” tab on our website. This is well worth taking a look to see how our clients, across a variety of industries, are helping each other and can help you.

Hotels – The Future Looks Bright…..

Over the last number of weeks and in the lead up to the IHF annual event, we have spoken about a wide range of topics from managing growth to innovation.
Firstly, a thank you to Mr Stephen McNally, an inspirational IHF President for the past two years.
Secondly, big shoes to fill but we wish Mr Joe Dolan every success in the coming period.
Mr Dolan’s comments regarding inadequate funding in marketing and product development hit home in a very raw way.

Both are important, but from a long term perspective, it’s product development
Or more correctly described as guest experience development.
A little more challenging in difficult times as often this requires a capital spend.
A little difficult given the disposition of our “friendly” banks in the past number of years.
But as the tide turns and the industry’s fortunes shift positively, the sharks are smelling the blood (or put another way – banks are becoming a little more interested).
Provided we have a clear understanding of our proposition and how we want to develop it, we are finding one bank in particular very “brave”.

At Aurora we know how to access funds.
And the steps are easy…. You just have to know how (ie. What the bank(s) want and how to prepare and present).

Let Aurora Accounting Services help your Hotel enjoy a Bright & Profitable 2016

Hotels: Labour Cost Management Crucial to Success

With the conference in Killarney fixed firmly in our diaries, the chatter in most cases this year will be about growth in sales. This as we know is not before its time.
From what we have seen, cost management has been successful in ensuring food & beverage margins have been well maintained. However, the same cannot be said about the management of labour costs.
As we have seen sales growth, we have also seen a disproportionate increase at times in the labour to sales.

While this is a constant focus with all clients, it is our primary focus at all new clients.
It is this relentless focus that has led to the successful management of our labour to sales ratio across all departments with all our clients.
This ensures an improved underlying performance of our client businesses.
Furthermore, in light of recent discussions regarding a living wage, we don’t expect the management of this key driver to get any easier.

Hotels Managing Growth

We are all looking forward to the IHF Conference in Killarney at the end of the month, following another year of growth in the Irish Hotel industry. It is widely reported on a national basis that this industry has recovered strongly with yields improving. However, as we dig a little deeper this is a story of two halves. Dublin and a few other urban hubs are experiencing the lion’s share of this growth, while more rural destinations are growing at a much slower pace.
Outside these urbanised areas, occupancy is floating somewhere between 50 to 55%. From what we have gathered in the industry in the last two years, the improving occupancy needs to be very carefully managed. We need to understand and target specific demographics to ensure that our ground floor activities are fully utilised by our visitors to maximise their spend during their stay. It is this management of the ground floor activities that is the difference between a healthy profit or not. It is our job to help achieve this profit goal.

Managing Your Business

We have all heard of Porter’s four P’s

Today we would like to introduce you to Aurora’s four P’s

These are our four P’s of financial management: 

Planning – Performance – Position – Projection 

This model has served our client’s extremely well in good times, has seen them through the challenging times and is set to continue to serve them well as we move forward to a new period of growth.

It is simple, understandable and employable in any business.

It takes all the accounting jargon out of your business’ financial reporting and management.

It has delivered results that our clients have for years commented positively on.

Our four P’s are for managing your business. 

Porters four P’s are for managing your sales and marketing-

Product – Place – Price – Promotion

A brilliant basis upon which to base a marketing plan.

It’s simple, it’s hugely effective and we use it all the time when working with our clients to develop their marketing plans.

Aurora SME Management Procast – Episode Three

Annual Plans, Monthly Meetings

The objective of an annual budget is to explain how we plan to move our business towards its purpose in the coming 12­ month period. If you don’t know what’s really going on, you can expect a never-­ending stream of nasty surprises.


If you missed the first two Aurora SME Management Procast episode you can listen in below.