3 Ways To Identify Missing Cash In Your Business

Is your business missing cash? There is only one way your business will survive—by consistently generating profits. But if there are things eating into your revenue without you realizing it, the losses can start slowly and build quickly into a much larger problem.

It’s important to identify why your business is missing cash. The quicker you can figure out where those losses are coming from, the faster you can fix the problem and generate a profit.

Here are three common reasons your business could be losing money:

Accounts Receivable: How long does it take you to receive payment for your services or products? Your business’s cash flow is affected by any asset and liability changes in your business. Accounts receivable and cash flow are linked. An increase in accounts receivable can hurt cash flow. If you are always waiting for payment, consider shortening your collection cycle—even a few days can help. And make sure you are sending out invoices in a timely manner. Don’t wait around. Your customers may not feel the need to pay the invoice promptly if you don’t send it out promptly.

Inventory: You need to make sure you understand what inventory is actually selling. Are you holding onto inventory that isn’t moving? Instead, follow the JIT inventory practice made famous by Toyota. Just-in-time inventory management means you only have enough inventory on hand to meet demand. If you sell t-shirts, don’t order them all upfront, order once they’ve been purchased. This will help you avoid having extra inventory on hand. You may also want to sell off any stagnant inventory; reduce the price or see about returning anything that hasn’t sold. This will put a little cash flow back into your business. If you’re not making sales on those items, there’s no reason to keep them around.

Your Account Payable Terms: If you set up better payment terms with suppliers, you’ll have more cash on hand. Review your payment terms regularly. You may be able to ask suppliers to extend your payment days from 30 to 45. This will allow you to smooth out changes in your cash flow. You may be able to pay for some things quarterly--water and power companies often offer this option. Or, set the payment term from the date of a complete delivery rather than a partial delivery. These all can help you keep more cash in your business.

By setting up better payment terms, paying attention to the inventory that actually sell (perhaps selling off unsold items), and changing your collection cycles, you can find the cash that’s missing in your business. Increasing your cash flow means increasing your bottom line.