Part 4.

Unfortunately, the consequences of committing these cash flow sins can be catastrophic, affecting whole families. It’s a case of small misconceptions and poor habits, wreaking havoc on businesses and livelihoods that should be absolutely flourishing. Briefly, firing out busy strategies, sales tactics and people management philosophies is not going to help your business if it is not built on the solid foundations of 100% up-todate books.

Sin #5

Holding stock INVENTORY that hasn’t sold, and yet you’ve already paid for (yikes!)

Inventory – paying for dead stock on the shelf will kill your business, so keep it moving or pay the price.

If you are in the business of selling stock, then this is the sin you’ll want to pay particular attention to and make sure you do not succumb to its wiles. Stock that sits on shelves unsold is referred to across a number of business sectors as “dead stock”. That’s a misnomer. It’s not dead, it’s alive – and it’s eating into your profits, so it has to be sold very, very quickly.

Sin #6

Running your business based on CASH in bank Cash in bank – is not a reflection of profit, don’t treat it as such.

Your business bank account is a big bowl of cash, but it’s not all yours. You can’t pretend it is and you most certainly should not act as if it is by making decisions based on the raw number you see there. There are a number of entities that are ahead of you in line for that money and your profits are right at the back of the queue. Before that money becomes profit, you’ll need to subtract tax and employee obligations like superannuation, benefits, loan repayments. In fact, the raw number you know as your balance, has very little to do with your profit. Actually, nothing to do at all!

Sin #7

Allowing OWNER DRAWINGS to exceed profit

You might look at your bank balance and feel like there’s plenty there for you, it’s been an exceptional month or quarter, you deserve it, why not?

Just remember, the figure you see there is not profit for the taking. It’s profit: minus loan repayments minus employee leave entitlements. minus other factors.

 

 

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