Why isn’t there any cash in my business?

May 5th, 2011

Have you ever wondered why you might be making a profit but never seem to have any cash in your business?   Don’t worry, it’s not just you but a common complaint in so many businesses.   So how is it that your business can be profitable but there never seems to be any money in the bank?

Sales are one thing, but it’s how much money you’ve got left to pay the bills that’s key.   No point in making the sale or delivering the service if there is no money at the end.

There could be a number of reasons, but here are some of the regular ones I come across and some solutions to them as well.

Problem – No GP$ target

Some companies don’t know how much cashflow is required in their business each month – they just do an activity and hope there will be enough pennies to keep everyone happy.   While I admire that sort of Pollyanna attitude it is a sure way to cause stress at certain times of the month.


Have accurate cashflow projections through the month taking into account both balance sheet and profit and loss movements.   Look at your bank account on a regular basis (daily) and forecast what income will be coming in v who you’re giving your hard earned money to.   If you reduce your receivable period and increase your payable period you may be surprised what that does for cashflow.   Some general ledger systems such as Xero will dashboard these receivable / payable days so you know exactly what you are doing.   If your GL doesn’t do this then calculate them manually

Problem – Pricing is incorrect – no GP$

This is where you are delivering a good or service, but haven’t really allowed sufficient margin.   It might be an old price that you just haven’t reviewed, or you haven’t taken into account the true cost.


When you are selling goods calculate what other factors affect the true GP$ – it may be freight, waste, theft, dated product and ultimately what you are selling the product for.  If you are delivering time, make sure you calculate all the ‘actual’ time that the project or task will take.   If you get your GP$ wrong it’s really downhill from there.

Problem – too much going out as drawings

Yes you work hard and might expect to be able to take cash from your business when you need to, but if you are taking out more than you earn that’s sure to cause issues.


Look at taking a PAYE wage which will appear on your P&L.   If you do take other drawings look at the drawing amount you are taking v the profitability – you’ll be surprised how the drawing figure can creep up over time!   The accurate way to see this is by looking at the balance sheet – not what’s sitting in the bank!   (Check with your accountant as there may be a tax reason that you’re taking drawings)

Problem – Capital repayments

Do you now how much money is going out in capital repayments each month and when it is going out?  A client I was with recently with cashflow issues hadn’t calculated their capital repayments each month which are about $30,000.  They were showing a profit on their trading reports but never seemed to have a bean in the bank.  


By understanding the money cycle they were able to change the capital payment dates to align them more to the income stream which eased the cash crunch.

Problem – poor debtor recovery

It doesn’t matter how many sales you make, if you don’t recover the money it’s pretty hard to pay the bills.


Have good terms of trade in place.  Make sure clients understand what is expected in respect of payment and have good internal systems to recover the money that is owed to you.

Problem – inaccurate information

All too often the information in a GL is inaccurate and if that’s the case it doesn’t matter how much cashflow projecting is done – rubbish in equals rubbish out.


If the numbers aren’t your most favourite thing get someone that is an expert in that area.   I prefer outsourcing this role rather than the business owner struggling to get it right each month.   Management reports need to be looked at each month – they’re your business scorecard

 The old saying is that if you watch the pennies the pounds will look after themselves and it is so true.   The challenge is to know what pennies to watch and then what to do.

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