How profitability analysis impacts cash flow

Most businesses want to grow their sales, but not all businesses need to grow all their sales equally. The sales mix is critical as some of the company’s products and services invariably have higher margins than others – or worst, no margins at all. One strategy that’s needed is to remove the money-losing products or services that do nothing except bleed cash. (Probably not much of an expansion plan in that case!)

Typically, the finance team, in conjunction with the operations and sales teams, works to determine the products and services overall gross margins. In a company with well-organized systems and controls, that means the company can determine profitability by the following 4 separate categories:

1. Margins by product
2. Margins by sales person
3. Margins by geographical region / sales person
4. Margins by customer

Armed with this information, the sales teams can better develop insights and analysis into what they are seeing in the field and translate that into ways to move effectively sell to company’s products and services at often even higher margins. That answers the most important question… “What generates the most positive cash flows through the business leading to more success for the business?” Profitability analysis offers the potential to have a tremendous impact on the business’s overall cash flows-because without cash any growth plan is not likely to succee