Profitable Business, No Cash?

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Are you a business owner, running a profitable business, yet every once in a while you look at your bank balance and you get that sinking feeling in your stomach or tightness in your chest?

Hi, I’m Judi Otton with GrowthCast, and today I’m going to give you some reasons why that’s happening, despite the fact that you’re running a profitable business, and these reasons all have to do with cash flow.

First, we’re gonna talk about cash flow in. You’re not getting the money in the door that is owed to you. Whether you’re not following up on your old accounts receivable, maybe you’re not invoicing in a timely fashion or God forbid invoicing for all the work that you do or maybe you’re not billing for all the billable expenses or billable hours that you have. I’m working with a service business right now and she was only billing for 25% of her staff’s billable hours for various reasons. So we’re putting processes in place to handle that.

Cash flow out – there are things that aren’t going to show up on your profit and loss statement or your income statement that is going to affect your cash flow. If you’re an LLC or a sole proprietorship or partnership, you may be taking an owner’s draw instead of payroll. That doesn’t show up on a P&L. Also, if you have any loans and you’re paying back the loans, the interest will show up on the P&L, but the principal will not, the principal will pay down balance sheet items. If you’re doing any capital equipment purchases or investments, those are also going to affect your cash, but not your profitability.

I realize that these distinctions can be kind of subtle. So if you have any questions feel free to reach out, I’m happy to answer any questions. But again, if you’re looking at your cash flow and it’s not what you expect it to be, despite the fact that you’re running a profitable business, let’s understand where it’s going and make sure that we can plug any holes that are there. This is Judi Otton with GrowthCast and I’ll be back next week with your Fiscal Fitness Tip of the Week.

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