Climbing ‘Profit Peak’ (Part 1)

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Diana Vollmer |

Grasp your cash flow, and grow, grow, grow

SAN FRANCISCO — Managing your finances helps you grow your business.

As fabricare professionals, you need many skills to handle the myriad of issues you face every day. You must oversee products, people, logistics, production, sales and marketing, locations, facilities — and it’s a full-time job.

But even more importantly you need to manage the finances, which appears to be a daunting task for many cleaners who contact me for assistance.

The most frequent financial question is a variation of, “if I’m profitable, why can’t I:

  • Pay my bills?

  • Get a loan?

  • Get a preferred rate?

  • Take a vacation?

  • Buy needed equipment?”

Or,

“I am able to pay my bills, so why am I:

  • Showing a loss on the profit and loss statement (P&L)?

  • Not a good risk from the bank’s perspective?”

When speaking to drycleaning owners and managers, their questions often focus on success at reducing expenses, increasing sales or theoretical profit on incremental sales.

If you don’t like numbers, now is a good time to grab your caffeine of choice. If you’re serious about your business, passion for them is the key to success.

There are two primary financial documents for operating a business: P&L and Balance Sheet. There are also two secondary statements: Cash Flow and Retained Earnings.

P&L

The P&L, also known as the income statement, reflects a specific period of time, usually monthly, quarterly or yearly, with accumulated year-to-date information as well. It reflects sales/revenues, expenses and net income.

BALANCE SHEET

The balance sheet provides an overview of assets, liabilities and owner equity at specific date in time. It is a snapshot of the business status the day it is created.

CASH FLOW

“The cash flow statement shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.” — from Wikipedia.org.

Note: Cash flow is quite different from profit and loss and is critical to the smooth operation of the enterprise.

RETAINED EARNINGS

“Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders’ equity on the balance sheet.” — from Investopedia.com.

Check back Thursday for the conclusion.

About the author

Diana Vollmer

Methods for Management (MFM) Inc.

Managing Director

Diana Vollmer is managing director of Methods for Management (MFM) Inc., a consultancy specializing in drycleaning businesses. You may contact her at dvollmer@mfmi.com, 415-577-6544.

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