Saturday, July 01, 2006

Intersting article

"How come there's never any cash in the checking account?"

How many times have you asked yourself that question? You know the business is making money. The Profit and Loss statement shows a profit every month. You are constantly signing checks to pay the quarterly tax payments. Every time you go to the bank for a ninety day note, your banker agrees without batting an eye -- just passes over the papers for your signatures.

And he tells you, "That business of yours sure cranks out the profits and it just keeps growing. What a gem."

But where's the cash?

If your business is growing at a rate of 30% a year, and your gross profit is 25%, you will always be out of cash. It's amazing, but unless the business generates high profits, even moderate growth will kill a business. The business can survive only as long as it has sufficient credit to borrow money -- more money each time it goes to the bank. But when the debt service closes in on the cash flow, any downturn in sales, or slowdown in collections, or increase in costs can stop the availability of credit.

How do you increase profits? Raising prices is a good way to start. My barber understands the supply/demand curve as well as anybody I know. He runs a one-man shop and works only by appointments. When he starts to see new faces looking for appointments (more demand), he raises his prices. Certainly some of the old customers leave and try another barber but they soon come back (he's that good.).....

read rest here


I found that article very interesting for us work at home type businesses, Maybe it will help you too.


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