Where Did All My Cash Go?
Where Did All My Cash Go?
A big challenge for a lot of business owners is understanding the difference between profit and cash flow. While the P&L may be showing growing sales and profit, the owner may notice that their cash balance is shrinking or that they are struggling to meet payroll.
Depending on your business, here are a couple of the most likely places to look for your cash:
1. Inventory: if you’re a retailer you probably see your products on the shelves as well as in your back room. What I see are big piles of cash. Don’t fall in love with your product. It’s sole purpose is to provide cash for your business and if it’s not selling, then it’s just cash sitting on your shelves instead of in your bank account.
2. Accounts Receivable: this is a big one for a lot of our contracting clients, but can be especially true for anyone dealing with large companies. Let’s say you’re an electrical contractor working on some new construction. A typical situation might be that your crew finishes work during the first week of the month, you bill your client at the end of the month and your client doesn’t pay that bill for 60-75 days after they receive the invoice. That’s about 3 months since you completed the work AND PAID YOUR OWN CREW not to mention probably paid for supplies for the job! You’ve been acting as a bank for your client’s business.
3. Interest: again, another common culprit for small business owners. Depending on your situation, it may be interest on credit cards you used to start the business or perhaps on a tapped out line of credit you have with your bank. In any case, these ongoing interest payments (along with principal payments) can be a significant drain on your cash resources.
4. Accounts Payable: while you might believe in paying all your vendors on time or ahead of time to get a couple percent discount, keep in mind that you holding onto cash for an additional 2-4 weeks could be the difference between staying in business or going out of business when things get tight.
One thing I didn’t mention above, which may be more the case for a business that is not profitable, is under utilization of your labor. We often hear phrases like “I have to keep my guys busy.” Think about how crazy that sounds! You’re not in business to “keep your guys busy and on the payroll,” you’re in business to make money. It never ceases to amaze us how often owners can lose sight of this very basic principle.
Your number 1 job as owner of the business is to make sure your business has cash to survive. One of the tools we introduce early on to most of our clients is a 90-day cash forecast. This helps give the business owner a 3-month window for any cash shortages and provides tremendous comfort for the owner that the business will have cash for the next 90 days. If you would like a copy of the template we use for this, send me an email at adams@maximumvp.com.
Where Did All My Cash Go - To learn more about this author, visit Adam Sonnhalter's Website.
Like this article? Share it with your friends
We hear this all the time from small business owners. They look at their Profit & Loss statement (a.k.a. Income Statement) which shows all this activity in their business, and yet their Balance Sheet (and checkbook) show little to no cash! So where did it all go?
A big challenge for a lot of business owners is understanding the difference between profit and cash flow. While the P&L may be showing growing sales and profit, the owner may notice that their cash balance is shrinking or that they are struggling to meet payroll.
Depending on your business, here are a couple of the most likely places to look for your cash:
1. Inventory: if you’re a retailer you probably see your products on the shelves as well as in your back room. What I see are big piles of cash. Don’t fall in love with your product. It’s sole purpose is to provide cash for your business and if it’s not selling, then it’s just cash sitting on your shelves instead of in your bank account.
2. Accounts Receivable: this is a big one for a lot of our contracting clients, but can be especially true for anyone dealing with large companies. Let’s say you’re an electrical contractor working on some new construction. A typical situation might be that your crew finishes work during the first week of the month, you bill your client at the end of the month and your client doesn’t pay that bill for 60-75 days after they receive the invoice. That’s about 3 months since you completed the work AND PAID YOUR OWN CREW not to mention probably paid for supplies for the job! You’ve been acting as a bank for your client’s business.
3. Interest: again, another common culprit for small business owners. Depending on your situation, it may be interest on credit cards you used to start the business or perhaps on a tapped out line of credit you have with your bank. In any case, these ongoing interest payments (along with principal payments) can be a significant drain on your cash resources.
4. Accounts Payable: while you might believe in paying all your vendors on time or ahead of time to get a couple percent discount, keep in mind that you holding onto cash for an additional 2-4 weeks could be the difference between staying in business or going out of business when things get tight.
One thing I didn’t mention above, which may be more the case for a business that is not profitable, is under utilization of your labor. We often hear phrases like “I have to keep my guys busy.” Think about how crazy that sounds! You’re not in business to “keep your guys busy and on the payroll,” you’re in business to make money. It never ceases to amaze us how often owners can lose sight of this very basic principle.
Your number 1 job as owner of the business is to make sure your business has cash to survive. One of the tools we introduce early on to most of our clients is a 90-day cash forecast. This helps give the business owner a 3-month window for any cash shortages and provides tremendous comfort for the owner that the business will have cash for the next 90 days. If you would like a copy of the template we use for this, send me an email at adams@maximumvp.com.
Where Did All My Cash Go - To learn more about this author, visit Adam Sonnhalter's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
To learn more about the Evan Elite Author Program please contact us. |
 | |
|  |
Subscribe to Adam's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 How To Select Keywords Get 'em Good or Get 'em Gone! Instant Yellow Pages TeleSeminar Etiquette NichePreneur Mindset |
|
 | ||
 |
Top Social Business Blogs
Top Social Entrepreneur Blogs | |
 |
Top 50 Marketing Blogs
Top Marketing Blogs of 2010 | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||