Where is the cash, most small business owners ask?

I hear this question asked over and over. We are doing a  five hundred thousand a million or even a few million in revenue, it doesn’t matter what the revenue is, were is the cash, I am constantly asked?

Its an excellent question and can usually be answered after a few issues are considered. Here is were it is all hiding.

1. Accounts receivable. Do not forget you always have a significant amount of cash owed but not paid, it may be the single largest source for finding your cash and it never ends, there is always a twelfth of your annual cash or more perhaps a sixth owed to you but unusable until it arrives.

2. Inventory. How often are you turning your inventory, some items may be going quickly and turn many times per year and thus are producing cash not hiding your investment, but if you look carefully you will find lots of inventory that just does not move or turn frequently enough. That’s were your cash is locked up your cost of materials, labor etc. etc., all invested in creating inventory waiting to be turned into cash after its sold and the receivables collected. This can result in a huge amount of unusable cash drain.

3. High overhead. This is a difficult analysis but must be done, for example perhaps in a generous spirit you have committed to provide 100% medical benefits for employees even for their families, or perhaps your offices or factory or warehouses carry too high a rent load, or possibly you have too many employees, too much vacation time, too much everything. Check it out, that may be were your cash is going.

4. A huge issue is productivity. What your employees are producing in a given hour or day or a week. It is probably very low and thus you are paying much much more for your inventory then you imagine. Check it out. (see other blog entry’s on this subject)

5. Basic profitability. Are you selling your items for the right price? Check your profitability out you may be surprised as to how little cash you have available to use because you are not profitable enough. Are you  charging enough or are you just spinning dollars? Most businesses owners have no real idea what their actual profit is and thus are driven by what they believe they must sell it for to either meet competition or satisfy a presumed market requirement. Usually a big mistake.

6. Gross revenues may not be adequate. You may need to increase total sales to yield adequate cash and profit to run your operation and yield the profit you want. Do a cash flow and check it out.

Thus more then likely you are not running your business with key indicators, monitoring the above issues and controlling your profitability, cash flow, revenue, overhead burden, productivity etc. etc. etc.

That’s were your cash is hiding. Go find it, or better yet, understand what is going on and fix the problem areas, make it all work together. That’s what business owners should be doing. Call if you need some help 413-549-2966.