Where’s My Cash?

“The income statement that my accountant gave me says that I am making a nice profit, but I never seem to be able to have enough cash.”  Does this sound familiar?

If this concerns you in your business, you are not alone. Here are some common issues that may affect the cash flow of a business:

  1. Invoices are not billed timely and promptly because supporting information has not been processed timely.
  2. Customers pay invoices short or delay payment because of product quality issues or invoice errors.
  3. Inventory is increasing faster than sales because of poor purchasing practices (which could be driven by poor inventory practices).
  4. Staffing is increased to meet short-term demand without considering whether the demand is short-term or if it will continue.
  5. In a project based operation, you are not properly reconciling progress billings with the actual expenses incurred.
  6. Failing to plan for income tax payments and other large payments (i.e. insurance).
  7. Not adequately planning for or financing long-term assets.
  8. Taking distributions without leaving enough cash in the business for operations.
  9. Theft, waste or not managing expenses & inventory.
  10. Past due receivables are increasing because customers are also experiencing cash flow issues.

You should become disciplined to look to the accounting system for the daily cash balance and not the online bank balance.  Your accounting system will show all transactions including checks that have not been presented to the bank for payment nor will they show receipts that have not been deposited at the bank.  Relying on your accounting system cash balance, which must be reconciled to the bank statement on a regular basis (monthly), will allow you to avoid serious and expensive mistakes.

Establish a process to create cash flow forecasts, that are continually modified and updated as new information becomes available.  A forecast for the next 4 to 6 weeks will help you keep it realistic.  Establishing cash flow projections is simply using a few basic principles combined with your intuition and knowledge of the business.  Adjust for any anticipated changes and never project revenues that you cannot be fairly certain will occur.  If cash is particularly tight, have your staff provide a daily balance first thing in the morning, every day, with an updated forecast.  This will seem like a daunting task at first, but it will become much easier as it becomes a habit.

Understanding your cash flow will give you peace of mind and help you start to take control of the financial side of your business.

If you would like to discuss the ideas here in this blog or other aspects of your business, please contact me by e-mail at andrewtucker@b2bcfo.com or by phone at 704/651-2216.

Every Company, Regardless of Its Size, Needs CFO Services.  You can now afford them with B2B CFO®.

Cash.  We Help You Get It®.

photo credit: That dollar bill’s keeping an eye on me… -{ #FlickrFriday ]- via photopin (license)

Tags: , ,

Share This:


Leave a Reply