Years ago, Arlene Soto, our SouthEast Wyoming Entrepreneur SBDC director located in Cheyenne, had an idea to write business tips and submit these for publication to Wyoming newspapers. She wrote these herself for a few years; today many of our staff write the weekly business tips. The business tips are another avenue to provide quick answers on a
variety of business topics and trends that are relevant to small businesses and entrepreneurs. Our business tips are distributed through the University of Wyoming online news service, several newspapers and through our blog which can be found on our website: http://wyen.biz/blog1/.
This past April, our 600th business tip was written and published. Below is the very first business tip written by Arlene in 2002. As you read her article from 2002, you will realize her business tip is still relevant to businesses today. Thank you Arlene! It was and still is a great idea!
WYOMING BUSINESS TIPS FOR THE WEEK OF JUNE 2‑8
(A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC) at the University of Wyoming.)
By Arlene Soto, WSBDC SouthEast Director
"My small business is profitable, so why don't I have any money?" Jessica, Casper.
Profits are different than cash flow. Profits represent revenue minus expenses. Most small businesses use cash in ways that are not expenses. Talking to an accountant can provide insights into where cash is being used.
Accounts receivable could be part of the problem. Under the accrual method of accounting, revenue is recognized when an invoice is sent. Those sales will increase the net income on the profit and loss statement (also referred to as the income statement) but not be converted to cash until the invoice is paid sometime in the future. Cash flow could be a problem if accounts receivable are not being collected within a reasonable time.
To correct this problem, review credit terms being given to customers. Are they reasonable for the industry? Are customers paying according to the terms given or are they paying late? Put policies in place to collect as quickly as possible.
Inventory is another asset that uses cash until it is sold. Stock for sale may be sitting on the shelf longer than necessary. Some inventory may have been around so long it is obsolete.
To determine if inventory is a problem, take a physical count. Review the dates inventory was purchased and the usefulness of the unsold items that have been on the shelf a long time. Reduce the price on those items that need to be moved. Discard or donate obsolete inventory to clear the shelves. Check to see if suppliers will accept returns or exchanges. Organize retail shelves to look full without the cost of items sitting unsold. Review purchasing policies to make sure they meet customer demands, carry only the quantities that will be sold quickly.
The purchase of equipment or other fixed assets also uses cash that is not reported on the income statement. Another use of cash not reported as an expense is the repayment of principle on loans. Owners' draws may be too high for the cash flow in the business and also are not reported as an expense. Verify there are no opportunities for employees to embezzle cash from the business. Implement theft deterrent policies, insurance companies often provide services to help.
Cash flow is more important to business success than profits. Many businesses fail because of poor cash management policies.
Wyoming Entrepreneur SBDC, PTAC, MRC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming.