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Where Did All My Money Go!

business cash management Aug 07, 2023

A popular question I get every week from business owners is “Why is my business profitable but I have no money in my bank account?” 


It is a frustrating and confusing experience, but it's not uncommon.


One reason for this is a lack of understanding of the difference between profitability and cash flow.


Profitability refers to the amount of money your business earns after deducting expenses. 


Cash flow, on the other hand, refers to the amount of cash that flows in and out of your business. 


Just because your business is profitable doesn't necessarily mean you have cash available.


Another reason for this situation is poor cash management. Your business may be profitable, but if you're not managing your cash flow effectively, you could still end up with a negative balance in your bank account. 


Think about where you are spending your money every day. When I am reviewing clients' , especially new clients, financial statements almost every time we find expenses that they did not know what they were buying and why.


It's important to track your cash flow regularly and ensure that you have enough cash reserves to cover unexpected expenses.


Additionally, it's possible that your business is carrying too much debt or you're not collecting payments from customers in a timely manner. 


This can cause a strain on your cash flow and leave you with little money in your bank account.


Here are three tips to help address the issue of a profitable business with no money in the bank account:


Consider renegotiating payment terms with your vendors or suppliers. If you can extend the amount of time you have to pay them, it can help improve your cash flow.


Implement a more efficient invoicing and payment collection system. This can include using software that automates the process, or offering incentives for customers to pay early.


Keep your bookkeeping update to date and review your financial statements monthly. 


This can help you identify areas where you may be overspending or where you can cut back. It can also help you plan for future expenses and ensure that you have enough cash reserves to cover unexpected costs.


You never want to be stuck at the end of the year with a large tax bill and no cash to pay it.

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