Blog

Is that you, your Business!  

Your Business is generating income; it looks good on paper, but your bank account doesn't have the corresponding available cash deposits!  

In accounting language, your Profit and Loss statement can look healthy, but your bank balance paints a different picture. 

This challenge faces many Businesses as they struggle with this cashflow disconnect, particularly during periods of transition or growth. 

You may recognise these symptoms and causes. 

• Infrequent or irregular expenses. If expenses such as loan repayments, insurance premiums or quarterly BAS are not factored or forecast in advance, their arrival can have a disastrous impact on cashflow reserves. 

• No separation of funds. If all monies are bundled together in one account, it can make tracking the various items difficult. Payments like Tax, and GST can be overlooked or confused. 

   

• Outstanding Accounts. You may have generated invoices to your customers this month, but if they haven't paid yet or are slow, you won’t see the cash until the following month. There is a gap between profit and revenue recorded. 

• Premature reinvestment. In the short term, ensure there are sufficient funds and a cash buffer before expending and expanding with equipment upgrades or hiring. They are excellent long-term moves, but timing is critical. 

How do you address the problem? Are there any solutions? 

Here are 3 Remedies to help fix a Profitable but Cash Poor Business 

1. Prepare a rolling cash forecast. Cash flow forecasting is planning that allows you to look forward by providing a complete picture of when income is received, when debts and outgoings are due, and what your net cash position will look like. 

2. Create separate Tax and Super accounts. Regularly transfer amounts into each account to help build a buffer and reduce stress at tax time. This provides greater transparency and accuracy.

3. Monitor Profit and Cashflow. Use both these reports together when undertaking your monthly finance review. This provides an accurate position of profitability and liquidity. 

By adopting these practices, you are better placed to meet all your obligations, such as paying creditors and staff on time, meeting your ATO responsibilities, reinvesting with confidence and having a more secure and financially stable Business. What every Business owner aims for! 

Need help with managing your Business affairs? Blackburn Accounting is your family Business specialist.  

We offer a broad range of services, including Family Business Management, Cashflow Management and Business Development. Our Team is here to provide the answers you need to run a successful Business that’s running at peak performance.