Here they are:
- Doing profitable work and collecting for it months later or never collecting for it…after you paid your employees and your suppliers.
- Not having timely, accurate financial statements so you can make sure that your service, replacement, and new construction jobs are sold at a profitable price.
- Using the cash method instead of the accrual method of accounting. (Cash method means that you record a sale when you get paid. You record an expense when you pay the bill. There are no accounts receivable or accounts payable. Accrual method means you record a sale when you send the customer a bill even if the customer has not paid yet. You record an expense when you receive an invoice from a vendor, even if you haven’t paid the bill. You have accounts receivable and accounts payable.) Cash method of accounting almost always shows a profit, whether or not your service work or replacement jobs are profitable since you generally don’t pay bills until you have cash to pay them.
- Performing profitable work and the client files bankruptcy during the middle of a project leaving your company with hundreds of thousands of dollars in receivables that are uncollectable.
- Purchasing too much inventory, giving your employees total access to your warehouse, and allowing them to keep too much on their trucks. You’re betting your hard earned cash that you can sell what you’ve bought. What does your warehouse look like?
Here’s a growth rule of thumb: You need 10% of your projected growth in cash to fund the growth. If your plan is to grow by $250,000 in a year, you need $25,000 in cash to fund that growth. The cash is used for increased inventory, increased accounts receivable (if your company is not a COD company), increased overhead expenses, and potentially a vehicle or other fixed asset purchase.
Profits don’t pay the bills. However, profitable jobs are necessary to pay the bills. Collect for your profitable work quickly, pay your bills associated with that job, and stay solvent.
Get financially healthy in 2025
Every business, large and small, can benefit from taking a closer look at its numbers. Spot the trends that could cause cash flow, profitability, or productivity issues.
Click here to schedule a demo of Financially Fit Business.
Get and stay financially healthy in less than 10 minutes a month.
This book gives you the tools to succeed in business. Get your ego out of the way and be passionate and purposeful.
Click here to order on Amazon:
