Many shop owners face a strange problem: when they do the accounts at the end of the month there is a profit, yet on the day they have to pay the supplier there is no cash in hand. The reason is that profit and cash are not the same thing. In this article we will see where money gets stuck in a mobile shop, and how to keep cash flow healthy.
Profit vs cash — where is the difference?
Profit is what remains on paper after subtracting expenses from income. Cash is how much money is actually in the drawer, the bank and bKash right now. On an installment sale, the whole profit may be counted on paper, but the money will come in over the next 8-10 months. In the time in between, that money isn't in your hands.
Where money gets stuck in a mobile shop
1. Installment dues
The biggest one. With every installment sale, a large part of the phone's price stays in the market for several months. (Details: EMI business model)
2. Dead stock
A phone that has been sitting on the shelf for months has money tied up in it — and its price keeps dropping as new models arrive.
3. Advance payments to suppliers
Buying a lot of stock at once in the hope of a bigger discount can drain your cash.
4. The owner's personal expenses
If household expenses are taken from the shop drawer and not recorded in the accounts, cash goes down but you can't find the reason.
5. Customer credit
Even on cash sales there's the "I'll pay later" — these small amounts of credit add up to a big sum.
7 rules for keeping cash flow healthy
- Reconcile cash every day. At the end of the day, count the drawer and match it against the software (Cash day-close). Discrepancies get caught while they're still small.
- Keep shop money and your own money separate. If you take money for personal expenses, record it as an "owner withdrawal".
- Check installment collections every week. How much was supposed to come in and how much did — if the gap grows, take action right away.
- Check dead stock once a month. Clear out models that have been sitting for 60-90 days, even at a small profit.
- Know your supplier payments in advance. Write down when and how much you have to pay (supplier ledger).
- Keep an emergency reserve. Set aside a portion of each month's profit.
- Match the pace of installment sales to your cash. If you don't have the capital, don't suddenly increase installment sales a lot.
Which reports to check
| Report | What it tells you |
|---|---|
| Cash book / Day book | How much money came in and went out each day |
| Customer due / Overdue EMI | How much is outstanding in the market, and who is late |
| Supplier ledger | Who you have to pay and how much |
| Dead stock / Low stock | Which stock has money tied up in it |
| Profit & Loss | What the real profit is |
In PhoneSell Pro's Report Center you can get these by date and by branch, and accounting records every transaction on its own.
Extra care with cash in a partnership shop
If there are several partners, keep a clear record of who took money out of the shop and when, and when sharing profit, keep some in reserve instead of distributing all of it. Read: profit sharing in a partnership shop and the Partners & profit sharing feature.
Final word
Profit tells you whether the business is doing well; cash flow tells you whether the business will survive. Watch both. With regular bookkeeping, you never have to face a sudden cash crisis in any month.
