Archive for the ‘Earnings Vs Profit’ Category
A lot of small businesses spend money given that they use a positive bank balance or because they think they have a positive bank balance. This is often a just crazy practice towards the health of the business.
Each time a business makes a big sale or turns into a large upfront deposit with a new order the owner of the organization may begin to spend the amount of money to pay for various bills, consider the spouse over to a costly restaurant or even buy a new boat. The master first should understand how much “free” cash he/she really has open to spend, before it is spent. A high level contractor of some sort, you may want that cash to buy materials with the specific job or to make payroll on that job. Simply because financial resources are there does not mean it can be spent with no plan.
Every business will need to have some form of “cash needs” analysis to understand what is due, if it is due and just how much will due. A staff could see a substantial check can be found in and think, “well, the master provides extensive money, I am going to require a raise”. The worker might not realize that the job is simply a break even job and all of the free funds will go to pay labor, materials and overhead at work. Finito, no more profit on this certain job. Many don’t understand that items like insurance, rent, utilities, etc. need to be paid each month.
Several years ago there is a contractor who received a big deposit on the job. While he had a lot take advantage his bank account he made several purchasing decisions that cost him his business. He spent a few of the job deposit on, you actually guessed it, a fresh boat. However it was only a payment in advance. He later lost the boat to repossession, the position never was completed anf the husband later lost his whole business.