How Time Erodes Your Profit

You’ve probably heard that time heals all wounds, but when it comes to the finances of your company the passage of time can inflict serious wounds.

Financing

How is your company financed? Is it internally, a line of credit, long-term loan(s), or some combination of methods? Regardless of how you finance a company, the passage of time can erode your ability to have adequate financial resources. One of the impacts of insufficient cash flow is you begin to lose access to sufficient financing. If you over invest in inventory (See 3 Low Cost Sources of Cash – Part 1) or your accounts receivable becomes seriously past due (See 3 Low Cost Sources of Cash – Part 2) you will damage you internal sources of cash, and that will eventually make it difficult to borrow as well.

Bad Accounts Receivable

In an earlier blog, 80/20 Rule for Receivables Management, I discussed some ways to manage accounts receivable to minimize problems in this area. Failure to stay on top of receivables can eventually cost you dearly. (See 3 Reasons Past Due Receivables May be Worthless for more on that). Let’s just say that failure to manage receivables will show you how time erodes your profit.

Opportunity Cost

When you inadequately manage you assets and liabilities, time will eventually be your enemy and steal opportunities from you. If you lack adequate financial resources, you will not be able to expand as you might like. That could be in the form of additional products and services or new or expanded facilities. Your sales and profit may be just fine, but lack of cash can make growth next to impossible. Thus, it costs the company in the way of lost opportunities.

Costs

When you lack funds to pay suppliers and service providers on time, you may eventually find yourself unable to get the things you need when you need them, be forced to pay higher prices, or some combination of both. If you encounter either or both of these, you again will see how time erodes your profit.

Are you being deliberate in making sure your company has adequate financing? Do you have in place policies and procedures to manage such things as inventory and receivables?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

 

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