By: Ruth King
Here are five ways to go broke even if your company’s financial statements show a profit:
- Doing profitable work and collecting for it months later or never collecting for it…after you paid your employees and your suppliers.
- Not reviewing timely, accurate financial statements so you can make sure that products and services are sold at a profitable price. This means accurate profit and loss statement AND balance sheet. If something doesn’t look/feel right – investigate!
- A corollary to #2: Having financial statement fruit salad. This means that revenues are in one month and the costs for producing those revenues are in another month. You have no clue whether the company is profitable. This is often seen in varying gross margins.
- Performing profitable work and the client files bankruptcy during the middle of a project leaving your company with hundreds of thousands of dollars in receivables that are uncollectable.
- For those of you with inventory, purchasing too much or not tracking it. Inventory is a bet. You are spending your hard earned cash believing you can sell what you bought. What does your warehouse look like? Are your bets good? Is inventory “walking out the door” and not being tracked or applied to a project?
Profits don’t pay the bills. However, profitable jobs are necessary to pay the bills. Collect for your profitable work quickly, pay your bills associated with that job, and stay solvent.