The Top 3 Areas Causing Cash Flow Issues: Old A/R, Too Much Inventory, and Poor Spending Decisions
The Boss asked me to help him understand his financials better. I asked what his main issue was, and he stated that he thought the profits were too low. We had developed a budget earlier in the year and he was comparing the actual financial reports to the budget. We knew the budget was not perfect as it was our first budget we wrote together and the first budget The Boss had ever written for his company. After reviewing the profit and loss, The Boss pointed out the net income was running behind budget for the YTD. We began to discuss what could be causing this effect on the P&L. I had The Boss initiate a job costing SOP and The Boss said he had been doing this religiously with good results. So why was the profit not showing up on the financial statements? After calculating some percentages, we could estimate what the dollars should be for the cost of goods sold (COGS) and overhead. We reviewed the balance sheet and calculated purchases versus the COGS on the P&L. Here we found the beginning of the problem Purchases versus COGS according to GAAP. I explained this as simply as I could […]