Cash Flow

Cash Flow

Many small business owners find themselves in situations where they have either more than enough cash or not enough. The problem is that most business owners do not pay enough attention to cash management discipline. Too many owners are more worried about what their Profit & Loss statement (P&L) shows instead of how the business’s cash flows in and out of their checking account.

Basic accounting principles best reflect how a business is managing operations, and management determines progress by comparing the P&L results. These principles, however, are focused on matching the timing of expenses with the timing of revenue. The P&L does not match cash inflows with cash outflows. Not matching these inflows and outflows is how a business showing a profit of $25,000 on its P&L ends up with only $25 left in its bank account. There are so many unforeseen ways this can happen. For example, the business may not have been paid on time for work performed or, alternatively, may have paid for expenses earlier than anticipated.

Steps to Take

  • Get an understanding of the timing of your expenses
  • Get an understanding of the timing of your revenues
  • Compare the two

After you’re able to lay out a schedule showing your anticipated revenues and your anticipated expenses, you’ll be able to reasonably predict where your pitfalls are and where you need to ensure you have money in the bank to cover expenses not just for today, but for the future.

At the end of the day, it does not always matter how well the company is performing according to the P&L. As long as money is available in the bank account, your business will never go bankrupt.

If you’d like additional information on how these steps apply specifically to your business, click here to schedule a call.


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