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ADVERTORIAL

Working Capital, Cash Flow, Liquidity –

It Is A Matter of Life or Death

You are a business owner, no matter what your set up properly, then here is one quick ratio you
business looks like. You may own a multi location should know and calculate often for your busi-
corporation supported by many employees. You ness: WORKING CAPITAL. Subtract your current
may operate as a self employed real estate agent, liabilities (accounts payable, wages payable, HST
plumber or consultant. One thing you have in payable etc.) from your current assets (bank, ac-
common with all of your peers is this – your busi- counts receivable, inventory etc.). If the result
ness will live or die because of cash flow. is positive, you have a positive working capital,
which technically means that you have (will have)
The phrase “the buck stops here” is the culmina- enough cash to pay all of the current liabilities
tion of many facets of your business, such as: the outstanding.
good or service that you provide, the demand for
that good or service, the revenue that you will re- To fine tune this and to give you a better idea of
ceive, the costs (direct and indirect) that will be your liquidity, do the same calculation but do
incurred, the timeliness of receiving your money not include inventory as part of your current as-
versus how fast you pay your costs, sets. This ratio allows for a “quick
and the money used for purchasing cash” result since inventory takes
things such as computers, furni- time and sometimes more money
ture, equipment, supplies etc. Ev- to liquidate. I could go on forever as
ery one of these activities needs to this topic is vast. What I will leave
be identified and analyzed in more you with is this – you run your own
detail. business and your business will
survive or die based on your cash
Profit does not equal cash flow. flow. The buck does stop with you.
Profit is the net result of your rev-
enues less your expenses based on We love to work with our clients
accrual accounting. This means that revenue is re- and help them to REALLY understand their fi-
ported when the sale occurs, not when the cash is nancials. We offer bookkeeping, accounting and
received for the sale. Expenses are also recorded tax (Canada & USA) services. With our newly
when occurred, not paid for – such as employee launched DSK Profitable Wisdom division we
wages, purchase of materials etc. You may show now also offer outsourced CFO services. We be-
$50,000 in profit but your available cash was lieve that a fully integrated finance division al-
used for inventory, capital assets or expenditures lows you the knowledge, insight and comfort of
required for the business. Unfortunately, income knowing that all your finance and tax needs have
tax on that $50,000 is still payable. Did you plan been addressed, leaving you more time to grow
on that? Did you know that was going to occur? your business profitably and cash positively.

Understanding your cash flow lets you know what If you are not currently running your business
cash you have available and what demands for with this sense of comfort, give me a call. I would
that cash are coming. If your accounting records love to sit down and have a chat with you.
are up to date and your financial statements are

Paul Drouillard, ACIS, P.Adm, CPA, CGA
Partner – DSK LLP & DSK Profitable Wisdom LLP
Visit: www.dskcpa.ca & www.dskprofit.ca

50 www.cambridgechamber.com
Spring 2019