High Revenue, No Cash? – Top 7 Reasons to Get an Annual Forecast

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Gershon Morgulis – Partner
Shelby Jackson – Marketing Associate

 

Revenue is up! But you have less cash than ever. Why is that?

We’ll be covering the top 7 reasons why, like many other businesses, you might have no cash despite revenue being up. Then we’ll discuss important things to consider as you build your annual forecast.

 

Reason 1: Delivering Before Getting Paid

Revenue is up, but you have 3 types of revenue and the biggest one is net 30 (or net 60 or net 90). Sales are up, but you have no cash because you let your customers wait to pay. Being flexible with your customers is great, but do you know how it is impacting your business?

If you have revenue growth but you get paid after 30 or more days, you need to pay your staff and probably your suppliers. That could cause a cash crunch in a rapidly growing company.

 

Reason 2: Accounts Receivable Problems, You are Selling but Not Getting Paid for all your Sales

Not all revenue is created equal! If you’re selling but not getting paid for all your sales, you could have Accounts Receivable (A/R) Problems and you will be short on cash. Some clients never pay! If you get stiffed by your customers, you still put time, money, and effort into supporting the sale. Make sure you’re selling to people who will pay!  

Do you know what type of customers you are adding?

 

Reason 3: Returns! Clients return things and you refund the revenue

If your customers buy more stuff and return it in a way you can’t resell it, you have all the expenses of producing the high sales, but not all the revenue you thought you’d get. Your sales are lower (because returns are not sales) but your expenses are higher! 

Are you looking at the right sales figures?

 

Reason 4: Inventory

Are you sitting on too much inventory? Even if everything you’re selling is highly profitable, a warehouse full of inventory costs money to contain and the inventory will eventually become ruined or obsolete. 

Do you know how much inventory you need to grow your business, and do you know how much cash you’ll need to support your future inventory needs?

 

Reasons 5: Unprofitable Business

You are selling but losing money! Here’s a case scenario. You have 5 products that make sense in a specific mix, but some of those products may actually not be profitable. You choose to keep them as loss leaders, to fill in gaps, or as a way to use extra scrap material. But what if your sales increases are from products like that? 

Is that where your money is going?

 

Reasons 6: Inflation

You are selling more but costs are higher, so it is actually less profitable! Inflation rapidly increased in 2022. According to BLS.gov, the United States saw the annual inflation rate increase by 7.1% as a result of the lingering effects of COVID shutdowns, supply-chain disruptions, and more. Even if revenue is up, income may be down due to higher expenses.

Are you selling more units or just the same number of units (or fewer!) at higher prices? Are your expenses going up faster than your revenue? 

 

Reasons 7: You are selling more but debt and other overhead are eating all your profits

You are making profitable sales, but your overhead is costing you way too much. This could include debt used to finance inventory, expansion, or even prior losses. 

Do you know how much your overhead is? How much do you need to sell to pay for your overhead? Will your overhead change as your revenue increases?

 

How do I avoid this happening in the future?

Our Answer: Build an Annual Forecast

 

If you know how much you will really sell, how much profit that will really produce, how much inventory, financing, and overhead you’ll need to make this all work, you’ll have a better plan and lots of advanced notice on cash flow issues – well ahead of time and before they become problems.  

You’ll be empowered to pick products that will make you more money. Reject customers that will cause you hassles, and plan for your overhead needs so that you have the necessary resources (human, financial, marketing, and more) to take your business to the next level. 

There are multiple factors that can lead to no cash despite revenue being up, and sometimes it can be difficult to pinpoint exactly how to move forward! An annual forecast is a great way to plan the next steps for your business to make measurable and intentional decisions for increasing cash flow. 

 

About Us

Our team of seasoned CFO’s at Imperial Advisory have over 150 years of collective experience giving valuable corporate finance insights that can help you put your best foot forward in 2023!

For more information, reach out to Ken Hamada about our 2023 Forecast Plan!

 

Sources

www.bls.gov/news.release/cpi.nr0.htm

Updated: January 20th, 2023

About The Author

Gershon Morgulis

Call Me When… Your client needs a CFO or when the finance team needs to expand skills or bandwidth