Erika Jones, CFO, CCTAProfit First Professionals · Certified Fractional CFO and Profit First Professional

What Happens If You Don't Have Enough Money in Your Op Ex Account? 'Under The Covers'

13 Jan 2021 · 2 min

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1:31

In this brief dialogue, Speaker A asks what to do when the operating expense (Op Ex) account lacks sufficient funds to cover upcoming bills. Speaker B explains that a cash‑flow shortfall signals a business problem that must be addressed by either cutting costs or increasing margins (e.g., raising prices or selling more). The immediate steps are: (1) halt or reduce ongoing expenses such as subscriptions; (2) proactively inform vendors of potential late payments; and (3) only as a last resort dip into the profit account, after all adjustments have been made. The conversation emphasizes that using profit reserves prematurely creates a “shell game” and masks the underlying issue, whereas communicating with vendors and right‑sizing the business are essential corrective actions.

Chapters

Alright. In profit. First, what happens if I don't have enough money in my operating expense account to pay all my expenses? Where do I take it from?
So that happens. It happens a lot. If you can't pay your bills, is first and foremost your business speaking to you. You can't pay your bills, you can't afford your bills and that means we need to adjust things. The only two things you can adjust by the way is you can cut costs or you can increase margin, sell more things at a higher price point. Now in the immediate circumstance where you can't pay your bills, the actions to take are as follows. Stop incurring more expenses at the same rate. So you know, can you cut some subscriptions or whatever. But you have to immediately look at that. Secondly is we want to see if we can afford ton call those vendors and say, listen, I'm going to be a little late in the bill. Communicate proactively but actively. Here's what not to do. Don't take from your profit account right away and try to cover the bill. Now you're starting to play a shell game in covering things. You can't pay those bills. There's something fundamentally wrong and it's a little bit painful to call vendors and tell them you're not going to pay them on time and so forth. But start making those adjustments will right size the business. Then there may be a circumstance where you do have to take from the profit account to cover expenses because you have that responsibility. But unless you make those adjustments first, don't touch that profit account. That's a last ditch effort.