Articles Tagged ‘Financials’

One Man’s Journey – The Profit Struggle

Wednesday, December 15th, 2010

Last week John called and wanted me to help him develop a 12 month forecast (profit and loss, balance sheet and cash flow) that his bank was demanding from him. John was a God fearing man, worked over 70 hours a week managing his company and the 30 employees that worked for him. His company had not made a profit last year (doesn’t anybody read the papers, it is tough out there) and yes cash was tight; but he was still in business, making his payments on time, meeting the needs of his customers and making payroll.

John said that since late last fall, his banker has been very concerned about his company’s ability to make a profit by year end and now since he hadn’t, his banker was demanding more information on a more frequent basis. John didn’t understand what all of the fuss was about. The company was not profitable and probably wouldn’t be profitable until the economy turn around. John had been through these down turns before and always came outof them, what made this one different?

The story behind the story. What John didn’t realize was his banker had
been reviewing the company’s financial statements for the last 9 months and
it shows that although the company had met payroll, payroll taxes and bank
payments, it was getting further and further behind with its payments to its
vendors. The company lost $400,000 last year and accounts payable had
increased $490,000 in the same period. The vendors had paid for the
$400,000 in losses and also picked up the $90,000 in principal payments the
company had paid down on their term debt.
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