“I had more sales this month, but less money left. What am I missing?”
A greengrocer asked the firm this question about a month before this case was published.
The firm's answer
Turnover rose—but what happened to the money coming in and going out?
Separate the month's profit from the movement of money. Check whether some sales remain uncollected, whether you paid suppliers for another period, and whether variable costs per sale increased. These three factors can explain why turnover rises while the bank balance does not. Without the figures, we cannot determine what happened in your business.
Three checks that help make sense of the figures
- Sales versus collections: Have all sales already become money received? Some payments may still be with customers or awaiting transfer from the payment processor.
- Supplier payments: Were debts for goods from an earlier period paid this month, or was inventory purchased that has not yet sold? The payment date and the date an expense affects profit are not always the same.
- The cost of each sale: Did the cost of goods, packaging or sales fees rise? Even when you sell more, you may retain less from each sale.
For a greengrocer, also examine shrinkage and spoiled goods as part of operating costs. These are possible areas to investigate; we have not established that they occurred in this case.
Turnover describes sales; profit takes costs and expenses into account; cash movement describes actual receipts and payments. The bank balance alone is not a profit and loss statement.
What should you bring for a review with the firm?
Sales and till summaries, bank and payment-processing statements, purchase invoices, supplier balances, and inventory and collection information. Examine the same period and compare the figures rather than drawing conclusions solely from increased sales.
Learn more: profit versus cash flow ↗This is general information presenting questions to investigate. Without the business figures and documents, the reason for the lower balance cannot be determined.