"Sales are up, so we are fine."
I have heard that sentence in many month-end meetings. Sometimes it is true. Often it answers only one of three questions.
Sales asks: did the customer buy? It is booked when the stock is invoiced.
Profit asks: what is left after discounts, bonus goods and costs? Bonus goods cost the same to make as the units you sell, but they bring in nothing.
Cash asks: has the money actually arrived?
A month can be strong on the first and weak on the other two. The clearest example is a month closed by loading the distributor. The sales line rises. The extra bonus goods eat the margin. The payment comes late, if the stock moves at all. And next month starts in a hole.
In my experience, the habit that changes this is simple. Review all three every month, with the finance manager in the room, and share the picture with your managers. Not only the sales line.
When first-line managers understand profit and cash, they stop asking for "one more deal to close the month". They start asking whether the business behind the number is healthy.
“Sales is what you sold. Profit is what you kept. Cash is what arrived.”
Lesson 1 of 17 in Step 3: Money, pricing and forecast, with the full guide and a checklist for this week.