Multi-Unit Franchisee Magazine Issue IV, 2011 | Page 70

Finance
By Steve LeFever

Did Someone Say “Profits”?
Understanding the Financial Operating Cycle

I

t happens every year, usually in February or March. Busi- some tax. At that point, you are left with NPAT. This is where
ness owners across the country meet with their accountants it gets interesting.
to review the previous year.
The accountant says to the owner: “Congratulations, you made Three uses for NPAT
a profit.” Of course, with the recession of the last four years, they As you can see in the diagram (but a lot of business owners are
not aware of this), there are three uses for
are saying that less often.
Regardless, what are the two most
NPAT: 1) to reinvest, or “buy assets,” 2) to
common responses from owners? You’re
repay debt, and 3) to “take them home.”
correct if you said the #2 response is: “If
Owners often ask me: “How much
we made a profit… what’s the line from
profit do I need?” The answer is really
Jerry Maguire? ‘Show me the money!’”
pretty simple. Think about it.
It’s the profits versus cash flow issue…
As you know, our “word” for the entire
we’ll discuss