Cash Traps

So What’s Accrual Accounting and Why Does it Matter?

So you make a sale. When you deliver the goods, you record it as a sale. If the customer didn’t pay you immediately, you record the accrued amount as Accounts Receivable. You order some goods. When you receive them, you don’t pay for them. Instead, you record the accrued amount as Accounts Payable. At the...


So What If You Wait a Bit Longer to Get Paid?

Does it matter if you wait longer to get paid by your customers? Only about a million dollars’ worth. In this example, the company on the left gets paid by its customers in 45 days on average, and the one on the right in 90 days. Nothing else changes. Assumptions for sales, costs, expenses, and...


Beware the Cash Traps

Profits aren’t cash. Profits are an accounting concept; cash is what we spend. We pay the bills and payroll with cash. While the plan-as-you-go business plan doesn’t necessarily include a full-blown financial forecast (at least not until needed) it should still be aware of cash balances and cash flow. Sidebar: True Story Cash Flow Problems This...


Run Silent, Run Deep, Run Out of Money

The most important problem is getting people who haven’t been running companies to believe that cash flow and profits are different. That’s so vitally important because, on the surface, it doesn’t add up. It isn’t believable. I developed business planning software originally as templates for business-planning clients to deal with the following amazingly typical exchange:...


Inventory: What a Difference Two Months Make

In this example, the company on the left keeps one month’s worth of inventory, and the one on the right keeps three months. That’s the only difference between both of these cash scenarios. The result of the three-month inventory assumption in this case is almost a million dollars of deficit by the end of the year....


Ten Rules for Managing Cash

Cash flow problems can kill businesses that might otherwise survive. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. To prevent this from happening to your business, here are my ten cash flow rules to remember. Profits aren’t cash; they’re accounting. And accounting is a lot more creative...


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