Skip to content

THE TIMES USA

The News that Matters

Menu
  • ABOUT
  • CONTACT
  • LIFESTYLE
  • NATIONAL NEWS
  • BUSINESS
  • INTERNATIONAL NEWS
  • TECHNOLOGY
  • PRICE OF BUSINESS SHOW AUDIOS
Menu

How to Reconcile P&L and Balance Sheet Cash Issues

Posted on September 2, 2020 by admin

By Ruth King.

 

I received this question from a client:

 

Lets say you have a loan you are repaying. $10,000 total – $9,000 to principal and $1,000 to interest. The only thing that shows on your P&L is the interest. The principal is reduced on the balance sheet. But if you managing the company off the P&L you are going to be light $9,000 so it’s not really an accurate picture. What’s going on?

 

Many of you probably have the same question.  You manage profitability from the profit and loss statement.  You manage cash and cash flow from the balance sheet.

 

Each month your profit and loss statement tells you whether you earned a profit or had a loss.  It does not tell you how much cash you have.  You must turn your profits into cash by collecting your receivables and paying the expenses incurred to produce those revenues.

 

Unfortunately you can be profitable and go bankrupt.  How?

A customer doesn’t pay you for your profitable work.

 

You grow profitably so quickly that you run out of cash.

 

You are drawn into a lawsuit (through no fault of your own) for profitable and correct work that you performed or someone getting hurt on a project.

 

Profitability does not ensure business survival. Many businesses have a month or two months that are not profitable.  Others have an unprofitable quarter and work the rest of the year to make up the losses.  What they aren’t realizing, is that they are also working the rest of the year to generate the cash they need to survive that quarter the following year.

 

So what do you do? First be profitable.  Without profits you won’t generate the cash you need to survive and thrive.

 

Second, determine your cash needs each month.  Calculate this by looking at sales, collections, the costs to produce goods and services, and overhead costs.

 

Sales count.  However, collections on those sales count more. If you collect COD then the sales for the month should equal the collections for the month.  However, many collections are 30 to 60 and sometimes 90 days after the work was completed.  You might have a sale in January, produce and deliver the work in February, and not get paid until March.

 

You sell a $30,000 project in January. Let’s take a look at the cash needs for February. Since you have no cash received for this job, your collections are zero.

 

Determine when you must pay for the cost of producing your products and services.  For example, many times you’ll have to pay payroll expenses for production before you get paid for the goods and services. You may also have to pay your material suppliers or subcontractors before you get paid for your work.

 

In this case assume that your payroll and production costs are $5,000. They are all due in February.

 

Finally, determine your monthly overhead costs.  These are generally the same each month and must be paid whether you sell or collect.

 

In this case, assume that your monthly overhead is $10,000.

 

For this example, you’ll need to fund $15,000 to produce the $30,000 sale that you get paid for in March.

 

Smart business owners manage both profitability and cash. You need both for a successful business.

 

Ruth King is known globally as the “Profitability Master,” and is a a thought leader in entrepreneurship and business. Her books have been recognized as among the greatest in numerous industries. Learn more about all her business activities here. 

You Might Also Like...

  • How to Empower Today's Small Business Owners

    INTERVIEW ON THE PRICE OF BUSINESS SHOW, MEDIA PARTNER OF THIS SITE. Recently Kevin Price,…

  • Americans Divided by Parties on Religious and Ethnicity Issues

    A new PRRI/The Atlantic survey of American attitudes about the health of our nation's democratic institutions reveals…

  • Help for Small Business Owners to be an Entrepreneur

    Morgan James' new business book release, "Do You Really Want to be an Entrepreneur?: How I…

  • How to Manage the Roller Coaster of Business

    By Daphne Michaels, Special for TTU Every entrepreneur I’ve worked with has complained about the…

  • Ten Signs of Dysfunctional Business Culture

    A new report from Marsh & McLennan Companies (MMC), tapping the insights by WomenCorporateDirectors (WCD), reveals a…

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

VIDEO: This Week’s Best of our Network

https://www.thetimesusa.com/wp-content/uploads/2022/05/Newsweek-Editor-on-Politicization-of-Buffalo-Tragedy-and-More-5_23_22.mp4

GDPR Compliance

USABR does not collect data on its visitors.  For more information visit: https://www.usabusinessradio.com/contact-us/

Contact

Contact articles@usabusinessradio.net for more information on articles on this site. BMuyco@usabusinessradio.net for all other information.

Recent Articles

  • A “Defensive Posture” in Finance is Not Sticking Your Head in The Sand
  • Clinic for Family Dentistry in Mattapan: How To Find One?
  • Why Digital Marketing Is Now the Go-To Method of Marketing
  • 5 Things a Small Business Owner Should Know Before Scaling
  • Different Types of Legal Fees Charged by Lawyers

The Secret to Making New Rich Books Work

The Secret to Making New Rich Books Work

Also in TTUSA

  • Jackpot Dreams Casino Download – Online casino list of 2020
  • Edgeless Casino Online With Real Money Review – Online casinos to play for virtual money
  • Regulation Of Slot Machines – Free online slot machine without registration 2020
  • The Best Places to Retire in 2019
  • Cons Of Casino Gambling – Best safe online casinos certified by

RSS The Daily Blaze

  • Why Has Shopify Plus Gained in Popularity? – 5 Factors
  • Post Reporter on Misuse and Abuse of Loans for COVID Relief
  • NY Times Bestselling Author on Why People Like Controversy and Why That Matters to Writers
  • The Importance of Using Social Media Platforms To Improve Business and Website Traffic
  • Have You Installed the Vingo App? Open a Free Account Today

The Leader in Business News

The Leader in Business News

RSS USA Business Radio

  • Adam Shapiro Discusses the Explosion in Rental Prices Nationwide
  • Cody Willard on How to Navigate a Dicey Stock Market
  • Newsweek Editor on Politicization of Buffalo Tragedy and More
  • EPIC Software-as-a-Service – A Consumption Model for Healthcare Providers
  • US Stock Market Moving Rapidly to a Bear Market

RSS USA Daily Times

  • Journey to Becoming a Millionaire Begins in Your Mind
  • Chris Miles’ New Commentary Feature on Price of Business Digital Network
  • 6 Ways You Can’t Hide Text in Files, Emails and Other Data From a Search Engine
  • What to Do When Your Health Insurance Won’t Cover a Treatment
  • Post Reporter on Disaster Relief Disparity in Texas

RSS USA Daily Chronicles.

  • The Significance of the Leaked Dobbs Supreme Court Draft Opinion
  • Technology Has Improved the Way That We Play Online Games
  • Is Now a Good Time to Sell a Business?
  • The Impact of the Roe vs. Wade Overturning Might Have Could Surprise People
  • Barbara Comstock Assess the Political Primary Season

RSS Price of Business

  • 5 Things To Consider Before Hiring A Contractor To Build Your Office Building
  • Adam Shapiro Discusses the Explosion in Rental Prices Nationwide
  • Post Reporter on Misuse and Abuse of Loans for COVID Relief
  • The Importance of Hiring a Commercial Lawyer for Your Business
  • NY Times Bestselling Author on Why People Like Controversy and Why That Matters to Writers

RSS US Daily Review

  • How Texas Is Looking To Provide More Mental Health Providers Into the Education System
  • Sen. Manchin Joins GOP in Blasting Biden’s Interior Secretary
  • The Benefits of IT Staff Augmentation Services
  • Handgun vs. Pistol: What’s Best for Self-Defense?
  • The “Tax Cuts Causes Inflation Argument” is Old and Requires Examination

PoB Digital Network

US Daily Review

USA Business Radio

USA Daily Chronicles

USA Daily Times

The Daily Blaze

The Times USA

Price of Business

© 2022 THE TIMES USA | Powered by Superbs Personal Blog theme