Where did all the money go?

 If you are comfortable with the amount of sales coming into your business but you still never seem to have any money your cash flow is trying to tell you something. Understanding where your money is going is essential in any business. Looking at your expenses in black and white and understanding where you are spending your money has an empowering effect. I think it can change your spending behaviour if you have an awareness of the impact it has on your bottom line and your cash flow.

You can review your expenses by looking at your current 'profit and loss statement'. Go through your expenses line by line and see what you think is excessive for your business. This process can take as little as an hour of your time. If you need a bit of guidance here you can compare each expense category to the previous year. Are they comparable? Generally speaking, most business run from year to year with a similar pattern of sales and expenses. If you are in a growth phase and your sales have gone up, then you can expect that certain areas of your expenses will have gone up also. Wages, purchases and utilities are common expenses that may go up in a growth cycle. Other things, such as rent and rates, will usually be steady across different years.

You may come to a line and think ‘wow ... we spent how much?’ Look deeper into these expense accounts and see if they make sense. Sometimes there are extraordinary expenses that just occur in one year. For example, a B&B that has repairs to a faulty spa one year will naturally have a higher repairs and maintenance account in that year. If you can logically explain it and it makes sense to you, then you can move on to the next line.

Highlight the expense accounts that you think are excessive and contributing to your cash flow shortage. You need to give these some thought individually. Some questions to ask yourself are:

•Why is this expense account excessive?

• Is there something I can do to reduce it?

For example, is your electricity bill far too high? Find out if there is a more competitive supplier or contact your current supplier for a discount.

Once you have gone over your expenses you need to check your 'drawings'. How much money have you taken out of the business in this financial year? Is it excessive? If you take too much out of the business, you will starve it of much-needed funds to get up and going or stay afloat. Assess the maximum amount the business can sustain and take no more than necessary.

If you are behind in your bills you need to do something about it and you will feel better for taking the first step. Make a list of all your outstanding creditors. Systematically go down the list and contact the suppliers that you know you are going to have difficulty in paying. Have a date of when you can pay in mind before you make the call and negotiate an arrangement with them. In my experience, most companies (including the ATO) are understanding and prepared to negotiate if you are upfront with them. Once you negotiate a date for payment or a repayment plan is in place make sure you stick to it.

If you need some help with your cash flow and this all seems overwhelming, please reach out!