Where is my cash hiding?

Cash flow is a constant source of worry for most small businesses. Making sure expenses don’t outweigh income can seem impossible – particularly in the first few years of business.

Talk to any business owner and they’ll have had that moment – “I’m paying thousands in income tax and GST, on profit I don’t seem to have. Where is it? Where is the cash?”

There are a number of places your cash could be hiding – here are some of the places you should be looking.

Your clients have it in their bank accounts

The first place to look for your missing cash is in your debtors ledger – the businesses that owe you money. Invoices to your clients mean your on-paper sales, profits and business value will look good. For many businesses, you’ll even owe tax on that income. So you’d better make sure the cash actually appears in your bank account. Allowing clients to pay you late, even by a week, can significantly impact on your cash flow.

You’ve been spending it

If you’re the owner of the business, you’re within your rights to use the business funds (take owner drawings) of any amount, whenever you choose. That flexibility comes with some good benefits, but can be a trap – if you’re dipping into company funds for personal expenses, you can quickly lose track of how much you’ve spent, and be left without enough to pay your business bills. $50 for groceries, $100 for a birthday present – it’s amazing how quickly even small amounts can add up. And you’ll pay income tax on this money – so it feels like paying tax on a $50k profit that you’ve already spent on haircuts and dinners out.

As an alternative, your accountant or bookkeeper can help you define how much you should be drawing as your wage each week or month. By taking these regular, defined amounts, you’ll have a clearer picture of where you really stand – both personally and in the business. The added bonus of this is that you’ll work your way towards operating like a ‘real’ business – paying yourself a market rate while also turning a profit.

You’re not making enough money

Sometimes the reasons why you don’t have any cash is because you’re simply not making enough to cover your expenses. Some of the ways you may be wasting money are:

  • Over outsourcing or too many people on staff – People are the lifeblood of your business, but can also be a major expense. You may have over-outsourced, meaning you’ve hired consultants or outside businesses to do jobs that you could realistically do yourself in a similar time frame. Or maybe you’ve got too many people on staff to do the work available – that’s not just bad for the books, it’s also bad for morale.

  • Making marketing mistakes – Don’t assume every marketing dollar spent is worth your while. To avoid wasting money on marketing, make sure to review your expenses and results regularly. Compare your spend in various areas to where your leads are coming from. If most of your business is coming through word of mouth, spending thousands on Facebook ads every month may be a waste.

  • You’re not keeping track of expenses The more closely you track your expenses, the easier it is to reduce them if you need to. You’ll be able to cut unnecessary or frivolous expenditures, and see when prices creep up – for example, if a supplier increases prices, you can shop around or negotiate for a better deal. 

It’s tied up in extra inventory

If you’re in the sales business, you’ll know that inventory can be complicated. Having well-stocked shelves feels good, and means you can give your customers what they want straight away.

But excess inventory can also slow cash flow. If you overestimate your sales for a month and have excess sitting on the shelves, that’s cash you can’t access until the items are sold. Try to balance inventory with sales, and get comfortable with asking customers to place orders if you don’t have stock on hand – it’s not the end of the world.

You own unnecessary assets

Maybe you’ve bought a new car, but haven’t yet sold the old one. Or you still own a lot of technology, even though your staff prefer to use their own. If you’ve bought or are holding onto stuff that isn’t helping you generate more income – sell it now. That’s where your cash has been hiding.

Found any hidden cash?

If you’re still struggling to manage cashflow, you may need some outside help. Talking to an expert – like one of the qualified accountants on the Thrive CA team - could help you work out where your extra cash is going, and how to get it back.

Talk to the team now.