Profits are Not Cash  

This is a misconception for many business owners.  When you get your profit and loss statement at the end of the month, the bottom line is the amount of profit you made. It is not the amount of cash you have in the bank.

Profits are turned in to cash when you collect your receivables and pay the bills associated with the creation of the product or service. You might find that a product or service you thought was profitable actually wasn’t profitable.

You can be profitable and go out of business.  One former business owner had been profitable for over 10 years.  In one week, three of his major customers filed bankruptcy, leaving him with over $1,000,000 in bad accounts receivable.  He didn’t have the cash to cover the expenses for those jobs and went out of business.

You can profitably grow your company out of business.  As you grow, you invest more in inventory, accounts receivable, fixed assets, and people expenses.  If these expenses outstrip your ability to pay for them, you will go out of business.

Profits are important.  Converting those profits to cash is even more important.    

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 Small Business Self-Help Financial CoachingTM

I'm Ruth King. Thank you for visiting this website. Since 1987 I've helped thousands of business owners and managers avoid financial mistakes, grow, and achieve the goals they want to achieve.

Most of us start our businesses because we have a passion for, or want to fill a need with, our products and services. We don't start our businesses because we love accounting (unless you are a CPA).

One of my first clients was a florist. She was paying an accounting service each month to do her monthly financial statements. They sent her statements promptly every month. My client looked at the profit and loss statement, saw that she was making a profit, and threw the statements in a drawer never to be looked at again.

She began having problems paying her bills. This puzzled her because her statements showed that she was profitable each month. She called me. I looked at the statements, asked a few questions and got a blank stare and silence back. I said, "You really don't know how to read these, do you?" She admitted that she didn't. I wrote a list of questions to ask the accounting service. It turned out that whenever they didn't know where something belonged they put it in miscellaneous sales! This totally screwed up her financial statements. My client fired them. I made her take a bookkeeping course. She said that she spent the three most miserable months of her life. However, now she knew enough to question a statement that didn't look right.

My worst client (financially) started with a negative $400,000 net profit (i.e. he was $400,000 in the hole). I helped pull him out of that hole and that company is still profitable over 17 years later.

I can help you too. Turn On My Financial LightbulbTM gives you the tools to understand your financial statements without taking a painful, three month bookkeeping class.

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