Where has all the money gone?
Afew years back I was called by a frustrated business owner. He and his business partner were working their butts off every day and didn’t have anything to show for it. Their accounting system told them they were making a profit but, despite their best efforts, they couldn’t find it.
Sales were growing so they should have been better off. As men often do when they can’t find something, they blamed someone else. So they started looking suspiciously at their staff and at each other. And, as is commonly the case when men can’t find something, the reason was right under their noses.
It was lurking down below. Just as the shark in Jaws was lurking below, feeding on unsuspecting innocents, there is a similar feeding frenzy below the profit and loss line of a business gobbling up your money. You can’t see it happening but you know the money is disappearing as fast as you can make it.
Your money has probably been eaten by stock, debtors, the bank, toys for boys and IRD.
When you look around your warehouse, you can see boxes and boxes of stuff just waiting to be converted into cash. Stocking up in anticipation of growth takes money out of play.
Your commercial customers may be using you as their bank. As you grow, more customers owe you more money for longer – often interest free! Your customers will appreciate your generosity.
When you grow a business, you often need a fix from your bank – a cash injection. Get your fix and pay on tick! Sadly, as with any addiction, there’s a price to pay. The bank has an intravenous drip direct into your account to draw out what they want, when they want.
And while you’re on a growth high, with sales breaking all previous records, who can resist the latest look-at-me machine/car/ brand new premises. You deserved it for all the hard work – good on ya mate! And chances are this was a spontaneous decision made without consultation or budget to see if it can be afforded. More money gone from the system.
And finally, if it hasn’t all been eaten, the IRD is there to take their cut and the money you have been collecting for them – GST, Provisional Tax and Terminal Tax all lurk below the bottom line.
When you’re having fun in the sun and loving the growth, beware of what is lurking below the surface of the ocean of cash. ‘‘Jaws’’ will take your money and if you’re not careful – you with it. Remember cash is king – keep plenty handy at all times.
Working hard, business growing, but still skint? Sharks are probably biting beneath your bottom line. Finances can be drained by all sorts of leaky factors.