Where’s the Cash? (Part 1)

“I’m supposed to be making money. But look at my Profit & Loss statement. See that bottom line? Where are the dollars? They’re not in the bank! Is someone stealing from me?”

I can’t tell you how many times I’ve heard those exasperated words coming out of the mouths of small business owners. The answer is usually not that someone’s embezzling. (A notable exception is that client in southern California whom the accountant had bilked for $600,000-see posting Make Money, Happiness, Both or Neither.)

The reason for the missing cash – as is true for so many problems in small businesses – is the missing fundamentals, the basic building blocks than any business must have to survive:

1. No cash projection. Most small businesses use QuickBooks, but QuickBooks doesn’t do cash projection well. Even if it did, most small business owners don’t have the system for cash projection system between their ears (where all computerized systems must start). The idea is to plan cash collections and payouts within weekly buckets, and to plan over a rolling eight weeks at least. Perfection is not required. But keep in mind that estimating projected cash is one of the ways small businesses become large businesses.
2. Uncollected Accounts Receivable. “Profit is a theory; cash is a fact,” a great business leader I know once said. That’s particularly true when it comes to receivables. You need a system, preferably between someone’s ears, for systematically collecting your AR – and somebody accountable for making it happen,. These systems work best when they are customer-service-oriented yet strict. When AR is not collected, cash from profits never has a chance to work in the business; it remains a theory.

Look for more reasons to explain where the cash has gone in my next posting. In the meantime, Are you on the loose or noose?

For additional small business leadership ideas visit Small Business Advocacy Center.

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