We always fall behind on cash flow at the beginning of the year--what are we doing wrong?
We own a shoe and sporting goods store. Sales in the year 2004 (the year before we took over) were in the $450,000 range and in 2 years and 4 months we increased them to roughly $650,000. But our debt is killing us. The problem lies in the amount of credit card debt and the times there is a lack of cash flow. Even though we plan things out pretty well, there has been one occurrence each January when we owe some bills that we don't have the cash to pay in full on time. Luckily, the 2 companies affected have been quite generous with us. What are we doing wrong?
They key is understanding how much money you have wrapped up in your inventory and how profitable your business is. Ideally, you would have adequate cash flow coming out of the holiday season to help during January. I would encourage you to review your profitability and cash flow for the last couple of years by month and see where things are trending. You need to find a good accountant who understands the management aspects and can work with you to develop ideas on how to improve profitability and cash flow.
Sound tax and accounting procedures are essential to growing a financially secure company. But multiple hiccups threaten the accuracy of these processes, elevating the risk of compliance penalties and reputational harm.