Profit is Positive, but Cash is King!

By Tina Zawila

I know you have heard us talk about this many times before, but unfortunately, we do come across profitable businesses that are at real risk of going broke.  The good news is that if this risk is identified early enough, the situation can often be addressed and the cash crisis avoided.

There are a number of ways that a profitable business can encounter a cash crunch:

·         Your customers are on account and take longer to pay you, than the time you have to pay your employees or suppliers,

·         The business is highly leveraged and the repayments on the loans take up a large portion of (or are more than) your net profit,

·         Your cash drawings from the business exceed the profits available (because you don’t know how much you are making).

The key risk is that without good financial monitoring and reporting, this could be happening in your business and you may not even be aware of the situation until it is too late! 

Given the software and technology available these days, and the access to professional advice, there really is no excuse for not being on top of your numbers.

One of the most invaluable, but underutilized success tools in business is a Budget.  Preparing a budget that includes a Profit and Loss, Balance Sheet and Cashflow could save your business from a cash catastrophe. 

By taking the time to project ahead and review the expected results in advance, you can take action now to avoid or mitigate a situation that may or will arise in the future.  It simply gives you a powerful advantage - the time to consider your options and act before a crisis occurs.  You can identify ways to increase income, curb spending, or if necessary re-negotiate your borrowings.

Operating your business with out a budget or without regular financial reporting is like driving your car on a dirt road at night without headlights – how can you see where you are going and how can you avoid the potholes or the tree?  Call our professional team at Sothertons on 4972 1300 and let us help you avoid a cash catastrophe.