Are you growing yourself out of cash?
It sounds like a good problem to have, doesn’t it? Or maybe it sounds impossible.
Not so fast.
When you’re in the rapid growth phase of business (picture below), it can be deceptively easy to grow yourself out of the critical cash you need to sustain your growth.

I have worked with too many clients who were pinched by so much growth that they didn’t have enough cash to keep fueling it.
Don’t forget: it takes cash to make cash.

Cash Flow vs. Profit

Business owners often think that they have cash because their profit and loss statement (P&L) or income statement says they’re profitable. But a positive bottom line does not necessarily equal good cash flow.

You can be profitable and still be cash-poor.
That was exactly Angela’s experience. Angela was a client with a twenty-five year old manufacturing business that was hemorrhaging cash.

How is this possible?
Well, the P&L statement only looks at income and expenses for your business. It doesn’t consider cash spent on assets you buy for your business, like equipment, vehicles and sometimes even an owner’s pay. Those only go on your balance sheet.

For example, buying a building or a vehicle takes cash out the door but is never reflected on the income statement. It’s only shown on the balance sheet.
Ideally, what makes you profitable also impacts your cash flow.

For example, it’s important that you make money on your sales. Overhead, people cost, material or product cost, insurance, rent, and anything else you utilize within your business to deliver your product or service are all reflected in your P&L statement and all need to be taken into consideration when you think about whether you’re actually making money on your sales or not.

After all of these expenses are covered, it’s important to have money left over so you can reinvest in your business. That’s where cash flow comes in.

One of Angela’s biggest issues was that the only item she had budgeted for was top line sales. Money was spent freely and whatever happened, happened. As you can probably guess, this created a huge cash crunch.

By definition, cash flow is the movement of money into and out of your business. It functions as the fuel in your business engine, allowing you to grow and prosper.
When I discuss this with my clients, I talk to them about printing money.
Do you have a specific service or a product line that’s just printing money for you?

(Printing money = so profitable that it generates a lot of positive cash flow).
Angela did. Her core business was printing money, but her second newly-acquired business was nothing but a drain on the company’s finances as well as her own energy.

If you don’t know how profitable different areas of your business are, start to peel back the layers of the onion to see what is generating the most profit and cash.

The opposite side of printing money, of course, is the cash that’s tied up in your business.
For example, if you’ve just bought an asset such as a vehicle using cash, you just paid for an asset for which you’re now trying to recoup the expenditure. You created a big outflow and now you’re only going to get inflows in little chunks – one sale at a time.

Compare that to the same vehicle purchase for which you worked with a bank to finance it. You have a small outlay up front for a down payment and pay in monthly installments for which you’re able to use the vehicle to earn money. Hopefully, on a monthly basis, that income exceeds your loan payment.

That’s what we call leverage, and it has an important place in your business if you use it wisely.
Angela had sunk a ton of money into the new branch of her business, and wasn’t getting anything in return.

She had a lot of debt on her books from this acquisition, and it wasn’t returning anything in for positive cash flows.
We worked together to figure out what it would take to get her business back on its feet.

Let me tell you, it wasn’t easy! We cut costs, cut overhead, streamlined procedures, collected outstanding receivables, cut her salary, increased prices and contacted prospective clients who received a pricing estimate and booked their order.

Where is she now?
Since she cut her second business, she has seen nothing but spectacular performance and growth. Without the extra headache of a life-sucking unprofitable second business, she’s been able to focus on growing her primary business year after year.

She had her biggest year ever – in both sales and profit!
Angela’s revenue grew just 20% from 2015 to 2016. But her bottom line grew 38% in that same period of time. Since then, her sales and profit have continued to post double-digit percentage growth each year.

If the numbers in your business are making your head spin or you’re growing yourself out of cash like Angela was, call me today and let’s talk about how I can help you grow with the cash you need.

Your CPA Shouldn’t Be Your CFO!

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