Are you running your business from the bank balance? Today we’re going to look at why, if you do, your business is all but certainly leaking profits. Relying on your bank balance to provide what you need to run your company is sort of like driving your car without a working dashboard. You know there’s gas in the car because it’s running — but you don’t know how much there is, how long it will keep running, whether anything else is wrong that needs attention. In effect, you’re driving blind.
The dashboard analogy is admittedly not perfect because it doesn’t go far enough. So let’s look more fully at why the bank balance is both an unreliable and insufficient source of information on which to operate your business most effectively.
First, the bank balance you look at online is almost never accurate in real time. But Anne, how can you say that? Pretty easily actually. Let’s look at the situation in which you receive invoices from two vendors. Let’s call them Vendor P and Vendor Q. You look at your bank balance, see there’s $4,000 in the bank so you confidently write an $2,200 check and mail it to Vendor P. Vendor P receives it but doesn’t cash it right away. A few days later, you look at the bank balance again and it shows $3,500 so you confidently write and send a check to Vendor Q for $1,600. Vendor Q immediately cashes this check and the same day Vendor P finally gets to the bank to cash their check. So what happens?
Vendor P’s check actually bounces because there are not enough funds in the bank to cover it. The check for $1,600 hit first and reduced the balance from $3,500 to $1,900. The $2,200 check then bounced which resulted in not only expensive bounced check fees but also an annoyed Vendor P and likely egg on your face for it happening. And that’s just one example of what can happen.
Some years ago I worked with a limousine company owner who had a business that generated over $1 million annually, yet he always ran the business by the bank balance. His accounting was never up to date and accurate. Never. Eever. For a business with a high volume of transactions, high capital costs and high labor costs, it can be a very tough business to make work well even when everything is running smoothly. Relying on the bank balance instead of up-to-date accounting books ensured that he was driving blind. There was no data available to truly understand the costs involved and where the company was hemorrhaging cash. It was clear that one place the company was bleeding money was in bounced check fees — over $1,000 in a month! Really!??
In the end, this business owner refused to change his ways and ultimately lost his company. It didn’t have to happen.
Stop it! Keep your books up to date and accurate. If you don’t currently use a bookkeeper at all or only check in with one around tax time, think about adding one in some capacity — as a business owner it’s not a good use of your time doing the bookkeeping. That said, you DO need to understand your ‘numbers’, what they mean and how to make them better.
Does this hit home for you? If it does, I’d be honored to talk with you to explore ways to plug this and any other profit leaks in your business. Don’t let this frustration fester any further into this new year. You deserve to have a company full of profit and NOT full of stress. Click here and let’s schedule a time to talk. Don’t let 2017 happen without fixing this huge profit leak.