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Use Financial Information to Control Your Cash Resources

May 26, 2009

A cash crunch is a problem faced by many, if not most, small businesses. With a good financial information system, however, you can track the financial strengths and weaknesses of your business and prevent problems before they occur. Pay close attention to these five types of statements:

  1. Income and profit-and-loss statements show the company’s sales, cost of goods sold, and gross 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. 
  2. Operating cost estimates project where a firm will spend its money. The projection can be compared against actual expenses shown in the income statement on a monthly basis. When expenses are viewed by category, you can compare your own operating expenses to industry standards. 
  3. 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 the same time. 
  4. Aging statements summarize the age and due dates for both accounts payable and receivable. This information shows how well your business is meeting its debt obligations and whether customers are meeting their debt obligations to your business.  
  5. Inventory control statements track inventory levels against consumer demand. You should be able to monitor how many times an item or the entire inventory turns over during the year. This, in turn, indicates how often you are reordering merchandise. These statements also can help you spot shortages that may result from theft. 

This information will help you determine if you should be collecting account receivables 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.

Plan and control your accounts payable. Instead of making all your payments on the same 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 paid when you have more cash on hand.

To discuss financial statements, accounts payable or accounts receivable, contact SCORE Lancaster “Counselors to America’s Small Business.” SCORE is a nonprofit organization of more than 50 expert counselors who provide free and confidential business advice to entrepreneurs. Call us at 717-397-3092 or find us online at

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