Where is my Cash?

One of the biggest challenges business owners face is keeping track of where their cash is at. “I’m working and nothing is showing up in my bank account! Where is my money going?” is a common lament I hear as a CFO consultant.

It’s no big surprise that cash is vital to a business. Plainly put, without cash, there is no business, because what’s a business that can’t manage itself affectively? When problems arise, a cash-less business is too crippled to operate properly. If business owners don’t know where their money is going, it can get tied up in unproductive places. If the cash stays in these dormant areas, the business will be crippled. Cash is an asset, your company’s greatest asset, therefore if you want to produce the maximum earnings and return on assets, you need to learn to utilize your cash effectively. To do this, a business owner needs to know where their cash is.

Take a look at this list of places where cash is known to hide. You’ll probably find your missing cash is in one or more of these places!

  • If you don’t adhere to a specific credit policy, your cash will come in slowly and get hidden in Accounts Receivable.
  • Some business owners like to pay in advance for things to get it out of the way and the stress off their mind. Unfortunately, this practice can lead to cash getting hidden in Prepaid Expenses.
  • You need to sell slow moving inventory so you can reinvest the money in inventory that really moves. Otherwise, you’ll fall victim to the same trap that gets so many retailers, distributors, and manufacturers when your money becomes unproductive and invisible in Inventory.
  • If a business owner decides to pay cash for a fixed asset when the return on their inventory and services rendered is much more than the cost of financing, or if they simply don’t realize the impact, their cash can get tied up in equipment, machinery or vehicles, leading it to hide under Fixed Assets.
  • Similarly to business owners who like to pay ahead and get their money lost in prepaid expenses, business owners who pay their bills too fast will have their cash consumed unproductively and prematurely in Accounts Payable.
  • The time period between the out lay of cash to provide a service or make a product and receiving the cash for that service or product is called The Cash Conversion Cycle. Receiving payment for the final product before paying for the expenses and/or inventory of production, and/or the expenses of selling the inventory is The Cash Conversion Cycle’s objective. Understanding your Cash Conversion Cycle allows you to productively work with suppliers and create strategies to meet this objective. AS a business owner, you want to understand The Cash Conversion Cycle and get it working smoothly, because you can find yourself waiting on money you feel should already be in your company and wondering where it is if The Cash Conversion Cycle is too slow.
  • This may sound almost counter-intuitive, but if at least 25 to 35% of your customers aren’t complaining about your prices, then you need to jack up your prices, because right now they’re too low! Obviously that’s a problem, but it can also be a problem if your prices are too high—that will impact margins.       You should always negotiate with your suppliers or streamline process to avoid Lower Profit Margins.
  • As a business owner, looking to your own salary to answer the “where is all the money going?” question may just be the answer. Think what an outside board of directors would pay you knowing all the factors and contingencies of your business. Base your salary off of that number and avoid abusing your business by taking too big a salary for yourself. Also check for a high overhead base. Nothing kills cash flow like High Overhead.
  • This last one is certainly not as likely as your money hiding in the other places mentioned on this list, and should absolutely not be jumped to as a first conclusion as soon as a business owner finds they’re not sure where their money is going, but it’s still worth being aware of. No one likes to think it can happen to them, but unfortunately, if you find you’re truly missing money, and it isn’t just hiding in any of the aforementioned places, you may have to look at those who work for you. The sad truth is that 80% of all theft is Employee Theft.
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