I want to talk to you about this little voice in your head that’s asking “where is all my money going?. I’m sending invoices out and I’m trying to manage things, but at the end of every week, month, quarter, there’s less money in my bank account then I thought there would be”.

Often this is a result of looking at the wrong reports. A lot of business owners will focus on their Profit & Loss, so they are looking and asking “how much revenue has come in, how much have we spent, how much profit?” and they are looking at their accounting software (Xero/MYOB) and thinking “wow we have made a lot of profit this month”, but they look at their bank account and start questioning why their P&L is saying they have made a lot of money, yet the bank account is empty.

There are a lot of factors that can impact this, for example the way you are accounting. If its accruals vs cash basis then you are showing revenues that you may not have received yet or, you may have bought a lot of inventory last month so your inventory levels are high but you haven’t sold it yet, but that impacts your cash balance. There are all these impacts on your cash balance that may not be having an impact on your P&L.

Another important factor is when you look at your P&L, these figures are net of GST. So when you have to pay your GST, whether monthly or quarterly, it’s a balance sheet transaction, not affecting your P&L, so it’s impacting your cash but not your P&L.

It’s really important that you focus on the 3 major reports:

  1. Your Profit & Loss
  2. Your Balance Sheet
  3. Your Cash Flow

And understanding your cash flow means more than just looking at your bank account. One of the things we do with our clients is we help them build a 3 way rolling cash flow. It takes into consideration your P&L, your balance sheet and your cash flow, what’s coming in and what’s coming out, and predicting that. 

Now it’s all well and good having all this information, but most importantly you need to understand what it all means, and unfortunately, most business owners don’t have a clear understanding of how to read and interpret these reports. So if you need some help with that, please feel free to reach out, we are always here to help. Just realise, if you have that voice in your head asking where your money is, then it’s probably sitting on your Balance Sheet and you may not be looking at everything the way you should be.