Ask SCORE
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52 Use Financial Information to Contro=
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Cash Resources &nbs=
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Cash
crunches are a problem faced by many if not most small businesses. However,
with a good financial information system, you can keep tabs on the financial
strengths and weaknesses of your business and prevent problems before they
occur. Here are five types of statements to pay close attention to:
- Income and profit and loss
statements show the company’s sales, cost of goods sold, and gro=
ss
and net profit. These statements, which indicate your business’s
profitability and the amount of cash available, should be analyzed on a
monthly, quarterly and annual basis.
- Operating cost estimates
project where a firm will spend its money. The projection can be compa=
red
against actual expenses shown in the income statement on a monthly bas=
is.
When expenses are viewed by category, you can compare your own operati=
ng
expenses to industry standards.
- Balance sheets provide a
snapshot of the liquidity of the business ─ how much cash is on =
hand
to meet debts, and how much cash would remain if all current payables =
were
met at that time.
- Aging statements summarize the age and due d=
ates
for both accounts payable and receivable. This information shows how w=
ell
your business is meeting its debt obligations and whether customers are
meeting their debt obligations to your business.
- Inventory control stateme=
nts
track inventory levels against consumer demand. You should be able to
monitor how many times an item or the entire inventory turns over duri=
ng
the year. This in turn indicates how often you are reordering merchand=
ise.
These statements can also help you spot shortages that may result from
theft.
This
information will help you determine if you should be collecting account rec=
eivables
faster; paying your own invoices sooner, or increasing sales or prices to
improve the profit margin. Delinquent accounts must be pressed at once for
payment, with further credit suspended until payment is received.
Pla=
n and
control your accounts payable. Instead of making all your payments on the s=
ame
day of the month, gain the maximum benefit of credit by paying invoices when
they come due. Do not pay invoices early unless you can earn a discount from
the vendor. If cash is tight, the accounts payable statement can indicate
accounts that need to be paid right away as opposed to those that can be pa=
id
when you have more cash on hand.
If =
you
would like to discuss this topic or business planning, business growth
strategies or a specific business issue, contact SCORE® “Counselors to America’s Small
Business.” To contact the Greater Binghamton SCORE Chapter 217 for
assistance call 607-772-8860 or 1-800 -920-6972. You may also contact SCORE=
® for person to person counseling appointments at =
the
above telephone numbers. If you are already in business onsite assistance is
also available. The Greater Binghamton SCORE®
Chapter 217 website is found at www.greaterbinghamtonscore.org
. The national SCORE® website is found at www.score.org
or sign up for email counseling at=
www.score.org
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