QUESTION: My balance sheet shows a ratio of 1.5-to-1 assets versus liabilities, yet my cash flow barely covers my monthly expenses. What is wrong with this picture?

ANSWER: Without knowing the composition of your assets, I must assume that most are illiquid. Real estate, furniture, fixtures, equipment and inventory on hand are illiquid assets, meaning they cannot easily be converted to cash. 

Liquid assets consist of stocks, bonds, CDs, cash on hand and, to some extent, accounts receivables, i.e., money owed to you. However, accounts receivables may be considered illiquid if they are more than 30 days past due.
If collections are a problem, examine the age of your accounts receivables. Again. customer accounts over 30 days past due are not liquid assets. Customers need to understand and agree to your payment terms. Send out invoices in a timely manner, and follow up on any over 30 days past due. If possible, insist on cash at point of sale.
Take your cash on hand and add current money owed to you by customers. If this amount is greater than your near-term obligations, you are in relatively good shape. In financial terms, this is your quick ratio. It needs to be greater than one.
In addition to your cash on hand, are there inventory purchases you can eliminate or delay? Quantity and order frequency are the keys to minimizing inventory purchases and increasing merchandise turnover. Determine the time it takes your supplier to resupply you, and keep on hand no more inventory than is necessary 80 percent of the time.
Employee salaries are a significant expense. Are you overstaffed? Can you eliminate or minimize overtime, without compromising sales or service? If yours is a seasonal operation, consider hiring part-time help during the busy months and retain only those necessary full-time employees in the slower months.
If you have a significant amount of money tied up in bricks and mortar, you might consider selling the building, renting comparable space, and adding the equity and cash savings to your working capital.
It is difficult to track all of the above unless you have developed a budget and a monthly cash flow analysis. You can find both online at www.score.org/resources/balance-sheet-template.
Note, when developing these templates, be conservative estimating income and realistic with expense items. In this manner any surprises you incur will be pleasant.

Gray Poehler is a volunteer with SCORE Naples. Business counseling on this and other business matters is available, without charge, from the Naples Chapter of SCORE. Call (239) 430-0081 or visit https://naples.score.org/mentors. The SCORE business office is located at 900 Goodlette Road North, in the Fifth Third branch bank building.