Where’s My Money?

You carefully calculated your pricing, invested time in sales and marketing, and the orders are rolling in. Business is busy, customers are happy, and revenue is growing.

Yet when you check your bank account at the end of the month, there seems to be little money left.

So where did it go? 

Printers and garment decorators are excellent at production, design and customer service. However, like many small business owners, financial management and cash flow analysis are often skills learned over time. When discussing business finances, I frequently see three common challenges:

1. Understanding the different between revenue and profit

2. Capturing the true cost of doing business

3. Managing cash flow effectively

Revenue vs Profit

Revenue is the money generated from your sales. You complete a job, send an invoice, and receive payment from your customer. In theory, it feels like that money should be available to save, reinvest, or take home as income.

In reality, revenue is only part of the story.

Revenue is the number that sounds impressive but profit is the number that matters. Profit is what remains after subtracting the costs of goods sold and all operating expenses from your revenue. Simply put, profit is the amount your business actually earns.

Increasing profitability requires a combination of growing sales and controlling expenses. Focusing solely on revenue growth without understanding profitability can create a false sense of financial success.

Capturing the Cost of Doing Business

Running a business is expensive, and it is easy to underestimate the full cost of operations.

Most decorators do an excellent job accounting for direct production costs such as ink, film, powder, labor, and blank garments when pricing their products. However, many indirect expenses are overlooked when calculating overhead.

Common expenses include:

• Shipping charges and packaging materials

• Reprints due to production errors or print failures

• Equipment maintenance and repairs

• Marketing and advertising costs

• Credit card processing fees

• Insurance, including workers’ comp, liability, health, dental, property coverage

• Utilities such as gas, electric, water, internet, and phone service

• Software subscriptions and technology expenses

• Facility expenses like rent, maintenance, and property taxes

Some of these costs occur annually or semi-annually rather than monthly. To accurately understand profitability, those expenses should still be allocated across the year and included in your monthly overhead calculations. 

Understanding Cash Flow

Many business owners experience a frustrating situation: the income statement shows a profit, invoices have been sent, bills have been paid, yet the bank account balance is lower that expected.

Understanding cash flow helps explain why

Accounts Receivable: If your business uses accrual accounting, revenue is recognized when an invoice is issued, not when cash is received. Your accounts receivable balance shows how much revenue has been earned but has not yet been collected. A profitable month on paper does not necessarily mean cash is available in the bank. 

Inventory: The film, ink, powder garments and supplies sitting on your shelves represent value. Purchasing inventory in bulk is savvy and can reduce costs and improve margins but it also ties up cash. Until those materials are used and converted into finished products and sales, that money remains locked in inventory.

Accounts Payable: Expenses are records when bills are entered, even if they are not paid until a later date. For example, a supplier invoice recorded this month may not be paid until next month under terms of Net 30 terms. While the expense appears on one month’s income statement, the cash leaves the bank account in the next. 

Liabilities: Equipment financing and business loans affect cash flow differently than operating expenses. The principal portion of a loan payment does not appear on the income statement, yet it still requires cash each month. As a result, debt payments can significantly reduce available cash without reducing reported profit. 

As a business owner, it is essential that you regularly review the three financial statements: Income Statement, Balance Sheet, and Statement of Cash Flows. 

Understanding these reports can feel overwhelming at first, but it is far less overwhelming than working hard to generate review and not knowing where the money has gone. 

Your financial statements tell the story of your business. Learn to read them, monitor them consistently and use them to make informed decisions. When you understand your numbers, you gain greater control over your profitability, cash flow, and long-term success.

Be the creator of your success.