Last post I asked you to determine why you want to increase your company’s profitability. Now that you have your answer, let’s get started.
The basics first:
#1 – Get a timely, accurate financial statement each month – including aged receivables and aged payables.
An accurate profit and loss statement and balance sheet by the 15th of each month – and preferably by the 10th of the month. In the old days we had to wait until our bank statements came through snail mail so the 15th of the month was the norm. Now you can see your bank statements every day on line. No more excuses!
Along with the financial statements should be an aged accounts receivable and accounts payable report. If the aged receivables don’t match the receivables amount on your balance sheet or the aged payables don’t match the accounts payable amount on your balance sheet something is VERY wrong!
This is your starting point. First, invest 97 seconds to spot the 10 most critical mistakes (email me for the list – rking@financiallyfit.business). Then invest another 28 minutes or less analyzing them so that you spot minor issues before they become major crises.
#2 – Get a weekly cash flow report.
A weekly cash flow report does not improve profitability by itself. However, it does help you keep an eye on your cash flow – critical for survival. Every week you should see beginning cash for the week, cash that came in the door through collections, sales of assets, loans, interest, etc. That is your total available cash for the week.
Then what were the cash disbursements for the week? Usually payroll, accounts payable, and loan payments with an occasional asset purchase. This gives you your ending cash for the week. Then estimate the cash for the following week – inflows and outgoes.
Your bookkeeper should put this statement on your desk every Friday afternoon with a list of aged payables and aged receivables. Focus on getting paid as well as paying your bills.
Email me (rking@financiallyfit.business) for a sample weekly cash flow report.
#3 – Look at your bank accounts every day.
It doesn’t matter where you are. You can log into your bank statements every day with secure access to the Internet. It takes less than 5 minutes to do this. Look at the checks, automatic withdrawals, and deposits. Make sure they make sense.
One of my clients’ bookkeeper did this (the owner did not) and noticed two little, less than $1.00, deposits. He thought the owner was setting up a new account and didn’t question him. The next day the bank called asking whether the owner had authorized a $50,000 withdrawal! Obviously the answer was no. The account was shut down. Those two little deposits were making sure the account was valid.
Minimum bank accounts? Operations, payroll, and a savings account to put your maintenance deposits and 1% of revenues in weekly.
Next week – more ways to increase profitability.
NOTE: If you missed Part 1, read it HERE.
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Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners become profitable and stay profitable. For over 40 years she has coached, trained, and helped contractors and others achieve the business growth and goals they wanted to achieve.
Contact Ruth by emailing ruthking@hvacchannel.tv.
