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From cash-starved to cash-rich: How companies are scrutinizing their Income Statements to turn things around

I am tempted to say this is the second post on this idea of moving from cash-starved to cash-rich, and it is. But that is not to say it is second in importance.

The first focused on Balance Sheet strategies. Back track if you missed it and then come on back.

Following are Income Statement areas of focus for a lender or business owner/manager wanting to improve liquidity. As is often the case, the hunt for improved cash flow dovetails nicely with the goal of improving profitability.

*Income Statement* Cash Improvement Opportunities:

Revenue:

  • Identify your most profitable revenue sources (profits now and potential).
  • Compare costs (out of pocket, energy, staff time) of your various revenue sources to decide if you are focused on the most profitable.
  • Consider growth opportunities.
  • While we are at it, if your company is a small business, consider what you really want to do more of. What resonates? What is fun? Really, life is too short to be stuck with what you do not want to do.

Expenses:

  • If it has been over six months since you took a hard look at your expenses, look again.
  • Consider assets you could sell and then lease back or rent as needed.
  • Consider contract labor rather than carrying employees, but remember that one reason to keep employees is access as things ramp up and retention of skills and company knowledge.
  • Postpone expenditures and purchases that will not be obvious to your customers. Be careful not to come across as a company in trouble, though.
  • If your employees will be negatively impacted by cost-cutting, communicate. How long will the cost-cutting be needed? Is it needed in order to avoid or reduce lay-offs? What needs to happen (revenue level or number of months cash flow) for the expenses to be possible?

Resources on Financial Statements

As I shared in the post on Balance Sheets, lenders and business owner/managers often need a brush-up on business financial statements to make the most of these ideas. Here is a short list of the relevant eCourses I have created just for lenders and they are just as valuable to business owner/managers:

  • Balance Sheet Basics (25:39 minutes)
  • Income Statement Basics (16:05 minutes)
  • Statement of Cash Flows Basics (22:39 minutes)
  • Terminology: A Foreign Language (25:53 minutes)
  • Types of Business Entities (22:58 minutes)
  • Cash versus Accrual Basis (16:20 minutes)
  • Debt, Debt Ratios and Debt Shortcuts (15:47 minutes)
  • Depreciation in Financial Statements and Tax Returns (17:10 minutes)
  • Introduction to Analysis (18:35 minutes)
  • Liquidity Ratios and Analysis (19:18 minutes)
  • Operating Cycle and Turnovers (23:11 minutes)
  • Leverage (20:57 minutes)
  • The Write-up (21:37 minutes)

Check them out at www.LendersOnlineTraining.com.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.