NEWS & RESOURCES

By: Charlie Miracle, Principal and Director of Client Accounting Services
Cordell, Neher & Company, PLLC

As a business owner, increasing sales can be a great for morale. But what happens if you receive a large order and have no way to pay for the supplies? Added revenue doesn’t always equal immediate cash in hand, which could put a strain on your business accounts and your ability to deliver on time.

Below, we’ll share what the difference between revenue (sales) and cash flow is, and how it can affect your business.

More revenue, more problems

While the thought of increased revenue causing more problems for a business owner can seem counterintuitive, there are challenges that increased sales can bring forth. But first, let’s talk about what revenue is.

Revenue is the total income generated by a business’s sales before expenses are deducted. This can also be considered cash inflow. Most often, this is income from your primary operations. Your business may also have non-operating income, which is generated from interest bearing accounts, investments or as seen recently, government grants.

When you have sales come in on credit, or terms, it can be weeks or months before you receive the full payment for the order. Additionally, credit card processors can take up to three days to deposit monies from sales, depending on your merchant services provider. Meanwhile, your business still must cover any expenses like building materials, new inventory, or payroll.

That’s where managing your cash flow comes in.

The ins and outs of cash flow

Cash flow is simply how money moves in and out of a business or bank account. Just like you have to budget your paychecks, bills, and expenses in your personal accounts, you have to manage the cash flow for your business.

As stated above, cash inflow is your revenue and your non-operating income. Cash outflow, then, is comprised of anything your business has to pay for such as rent, inventory, supplies, payroll, or refunds.

Creating a weekly forecast of anticipated cash inflows and expected expenses and payments for six to ten weeks into the future can help you see where any cash shortages could be expected. Keep in mind, the forecast is just an estimate and can be affected by delayed sales payments and unexpected expenses.

To create a cash cushion and give yourself some breathing room, consider:

• Maintaining a business line of credit: This loan allows you to draw funds when needed for expenses and pay them off on a payment plan, or when the revenue you were expecting comes in. Any money you use will incur interest charges as outlined in your loan agreement.
• Delaying payments: Don’t be afraid to call your supplier and negotiate the terms of invoice payments. You may be able to make payments in installments or agree to pay the balance of the invoice on a certain future date. But please, always do your best to keep your payment commitments so you maintain your credibility with your supplier for future negotiations.
• Raising capital: This means selling a portion of your company to investors for an influx of cash. This option should be considered very carefully before proceeding.

Managing your cash flow is an essential part of business ownership and can keep your company moving forward while minimizing growing pains. The team at Cordell, Neher & Company, PLLC can help you review your cash flow system and identify areas of strength or for improvement, or we can assist you in setting up your cash flow system from scratch. Give us a call at (509) 663-1661 to get started today.