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Where Did My Cash Go?

Jan 23, 2015

Cash flow issues seem to be a concern for many small businesses, and this time of year can be particularly difficult.    First of all, let’s define cash flow.  For the purposes of this dialogue I’ll call it the “flow of money into and out of the business.”  This includes revenue generated from sales, collecting that revenue, paying your bills for both the cost of goods sold and fixed expenses, and repeating the process.


Here before too long, a person’s accountant may tell them, “congratulations, you made a profit last year” as they complete the tax return, yet the business owner looks at their checkbook balance and it is nearly empty.  How does that happen?  First of all, there are some differences between cash flow and net income.  For instance, a business may have money tied up in accounts receivable that shows up in revenue but not cash as they have yet to collect it.  Other areas could be excess or stale inventory, principal payments that don’t reflect on the income statement but have to be paid with cash, or owner withdrawals that have not been accounted for, just to name a few.


Okay, but what can I do about it?  See if any of these ideas can be implemented.


-          Speed up billing.  Send invoices weekly or twice a month instead of at month-end.  Better yet, hand it to them at the
            time of service.

-          Beef up your collection process and consider changing your credit policy.

-          Negotiate longer terms with suppliers/vendors.

-          Be careful with taking discounts if you don’t have the cash.

-          Watch your inventory levels carefully, and move out stale or excess items.

-          Take credit cards in lieu of offering a customer an account whenever possible.

-          Fire some customers.  If they aren’t profitable you need to get them to the point where they are, or weed   them out.

-          Review your aging of accounts weekly and share past due information with sales staff.

-          Anticipate cash needs (budget) and establish a line of credit to cover shortfalls.


If you need help with analyzing your personal situation and developing a strategy for your business, contact Wyoming Entrepreneur for pre-paid, one-on-one guidance.

Category: Management

Bruce Morse

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