Again and again, accountants and consultants who specialize in small businesses say that these companies do not pay enough attention to cash flow. That is the measure of the amount of money you actually have in the business.


Be wary of big contracts

"Small business owners end up taking big orders that get into trouble," says Ronald Lowy, who heads a college business administration department. "They want the big contract, but not receiving enough money in front of it and not have the cash reserves to pay workers and other bills that are waiting to get themselves paid. They can show result of gains on an accrual basis, but from a standpoint of cash flow, do not. "



Judith Dacey, a certified public accountant, calls a cash flow statement "probably the most important thing in telling you if your business is on or off target." As an example that describes how members of the board of a group nonprofit were not audited the cash.



"They were hiring people and spending money on membership campaigns, and doing all these things based on money they thought they had to look at the profit and loss (P & L) statements," Dacey says. "Little did they realize that the profit and loss statement was an exercise, which basically means that you are including paper promises of payments to come, not money you have in the bank."



The nonprofit board realized the difficulty only when the organization bounced a check. Employees had to be dismissed, and belts were tightened. "This could have been avoided had they seen the cash flow statements," Dacey says. "A cash flow statement tells here is the money that has been sent and you can work."



A cash flow statement begins with the bottom of the profit and loss account - the line that shows your net income. Several adjustments are made to that number. The details are a bit complex, but the accounting program that does a good income and a balance also calculate this statement for you.


Tracking the Big 10

If you set a way to track cash flow, then you can take to organize and track 10 of the financial for your business. That's a big list, but do not panic: As with the profit and loss statements, you can take advantage of software programs to automate the monitoring of many of the following:



• Your assets



Tracking your equipment, furniture, real estate and other holdings should be easy. But to get a real idea of ??the value of your business, you also have to follow the changes in the value of those assets. More than one small business has been located on land that is worth more than the company itself. Similarly, also wants to track the declining value of assets such as computers and office furniture.


• Your Liabilities

At first glance, this is easy - liabilities are what you owe. But what should not always as obvious as a bill of the owner. Payroll taxes are a liability that depends on the size of your payroll. Loans are a clear obligation, but in the payment of them want to be able to track the amount of a payment is applied against the principal and interest.


• What does it cost to produce what you sell?

If you are buying a finished product for sale, this is relatively easy. It's more complicated if you have to calculate all the factors, such as labor that go into manufacturing a product.


• What costs by selling what you sell?

Advertising, marketing, labor, storage and catch-all category of overhead - it is useful to know how much it costs you to get a product sold as well as what it costs to create it.


• What is your gross profit margin?

This is calculated by dividing total sales in its gross profit. If the gross profit margin is consistent or an upward trend is likely to track.



Being able to follow a declining margin can give you a heads up that you should adjust your prices or costs. In the worst case, gross profit and profit margin disappear altogether. At that time, you will be like the man who lost money on every sale but thought he could do it in volume. Do not.


• What is your debt-asset ratio?

This link lets you know how much stuff you have in your company is actually owned by someone else - your lender. Having this higher ratio may be a bad sign. May occur as part of a major expansion, but also may indicate that you are getting in over your head.


• What is the value of their accounts receivable?

This is money owed. If accounts receivable are increasing, may be getting a warning that people who sell to are starting to stumble.


• What is your average collection time of accounts receivable?

This is probably one of the most aggravating pieces of information for companies with liquidity problems, as it tells the number of days you are acting as "banker" of people he owes money.


• What are your accounts payable?

The other side of the accounts receivable. An increase in accounts payable can only reflect a greater number of purchases in general. But an increase that has not been planned or managed can be an internal warning that your company's financial strength is waning.


• What's happening with their inventory?

Sometimes, even in this business just in time, when building a significant inventory can be a good thing.



If prices for items sold or used in production are relatively low, putting some of your money in inventory may make sense.



Being able to track the inventory can tell if the business is increasing or decreasing. It also tells you how much money is invested in this unproductive asset.



Know what happens to your cash flow is essential to your business. But sometimes the numbers can be confusing. Never be afraid to turn to professionals for help.