Profitable but always short on cash: the four places the money goes
By Chris Greco, Founder and President.
If the P&L shows profit and the account does not, the money is in one of four places: receivables, inventory or work in progress, lumpy debt service, or a distribution and tax calendar nobody wrote down. Find which one and the forecast writes itself.
A $12M carrier shows $640k of profit for the year and a bank balance $200k lower than in January. Receivables grew $410k as two large shippers moved to 52 days. Two trucks went on notes with $190k down. Quarterly distributions and estimates took $240k. The profit is real. It is sitting in someone else's payables and in the yard.
Measure DSO by customer, not on average. Lay the debt schedule against the next thirteen weeks. Put owner draws and taxes on the forecast as a line. Then decide, in advance, what happens when the line dips below your comfort level.
Chris Greco
Founder and President, CFO Anywhere. CFO for owner-led companies since 2002. Executive MBA, Gies College of Business, University of Illinois.
About Chris →More from Chris
Banking and lending · 5 min read
What we usually see when a buyer starts looking at the booksWhen a buyer starts looking at the books, the first thing they measure is the one thing the seller never has: working capital, month by month, for the trailing twelve months. The target they set becomes a price adjustment at close.
By industry · 6 min read
What we usually see when a contractor goes from $10M to $30MWhen a contractor grows from $10M to $30M, the backlog is the best it has ever been and the bank account is the worst. The company is financing its customers through retainage and slow draws while paying labor every Friday. Nobody has calculated over- and under-billings, so the P&L swings with whoever posted invoices that month.
Running the business · 4 min read
How much does a fractional CFO cost, and what should you get for itA fractional CFO for an owner-led company costs a fixed monthly fee set by how much of the finance function they take on, the number of entities, the state of the books, and how many decisions the next year holds. Anyone who quotes you before looking at your numbers is guessing.