Profits but No Cash

[stu567blue]

Hi All,

This is my first post on this forum and I hope someone will be able to help me.

I have a new online business that has been trading since the 31st January 2013 and has enjoyed an excellent couple of months of sales. Stock has been sent directly from my distributors and the company has been making a profit.

However, after checking my bank balance this morning I was a bit surprised to see a lower balance than what I was expecting. I started the company with £30 overall capital and I agreed to pay for a server to keep the website online for the year.

I am confused with regards to my situation the company is making profit yet, cash flow seems to be low?? The company has no credit accounts with its suppliers customers pay for products at the point of sale and I use PayPal to process orders.

My goal has been keep costs down this year and next year focus on the company taking on some of these costs.

Any help would be great.

Thank you

Rob

 

[Paul_Rosser]

Only you can tell why your cash in bank is lower than expected by looking at your records as to whats been paid in and out.

 

[Quickpacksupplies]

Start looking at what you charge against what your outgoings are.

You will quickly see the bigger figure then pin point what it is.

Sent from my Galaxy Nexus using Tapatalk 2

 

[FirstClassVirtualOffice]

How do you know you are actually making a profit if you have only just checked your bank balance? Have you checked the bank statement to see if anything as been overpaid or monies not received? What do your monthly accounts say?

 

[Ola1]

Might i say that its clear that you are not keeping accounts as you go along, correct ?

No cash, or reducing cash , as you have intuited , is more often a sign of losses in a business like yours.

The comment below

My goal has been keep costs down this year and next year focus on the company taking on some of these costs.

suggests that you've been spending a lot of your money , from other sources pushing the business forwards, ergo, the expenses when quantified are going to be even higher.

Are your products priced very low perhaps, to beat the competition perhaps ?

You do need to keep accounts,

They say "its hard to improve what you don't measure"

 

[janet40wood]

Cash is king in business especially in the current climate. The profit and loss account is entirely separate from cash so it is entirely possible to achieve profitability but run out of cash and of course when businesses run out of cash they are finished.
Keep regular accounts and analyse all expenses. If you have been purchasing assets, these will not be reflected on the profit and loss but go to the Balance Sheet. Profitability is all about the margins, the difference between sales price and costs. You need to turn that profit into cash promptly to continue to grow the business.
Look also at contracts, payment terms and effective credit control. Try and get as much cash in advance as you can.
Look at stock balances - are you keeping more stock than you need?
If you take all overheads and direct costs into account as well as stock values, are you really making a profit? Only by compiling regular accounts will you know. If you need any help setting up a system to help you please get in touch.