Cash is king so they say.
The lifeblood of any business is only as good as its cashflow. Being able to pay your suppliers, staff and bank commitments, is all dependent on having reliable cashflow.
And the same applies to investors. Many of whom get caught up in the tax benefits of negative gearing, but it ultimately doesn’t make sense to continue throwing money out the window, there has got to be some positive income for you at some point or why bother.
Unfortunately we have seen many good and profitable business owners say – “I’ve made a profit, but where is it?”
The answer often can be found on the Balance Sheet.
Lots of attention is rightly spent looking over a Profit and Loss Statement, but understanding where that money has gone is where a Balance Sheet comes into its own. A cashflow statement also works well, but many small business owners do not usually prepare a reconciled cashflow statement.
So lets look at some common cash holes on the balance sheet:
Cash at Bank – ok, lets start with an obvious one – do you have more or less money in the bank than 12 months ago
Debtors – this is money that your customers still have to pay to you, has it increased.
Stock – are you holding more stock than last year
WIP – do you have a large amount of Work In Progress which has not been finished yet, but will be invoiced shortly
Fixed Assets – have you replaced your equipment or cars or purchased new assets such as property or shares
Creditors – how much you owe to other people for materials etc, has it decreased
Bank Loans – have you made some repayments off your outstanding balances above just the interest costs
Provisions – have your obligations for Annual or Long Service Leave reduced this year
Shareholder Loans – this is you, have you pulled out extra money this year or funded private expenses through the business
Dividends – again this is about you, did you withdraw extra money this year from your retained profits
These are the 10 main sources of cashflow problems in any business, or a combination of several of them.
Once you understand where the cash has gone, then you can use some targeted strategies to address them. The team at GNS Group have some proven strategies and can work with you to unlock the cash from your business and to help you see the rewards of your hard work.