Most business owners would rather undergo a root canal than to actually sit down and handle their finances. Let’s face it, it’s easily the least fun part about owning a business, I’ve never encountered someone who liked to do bookkeeping, analyze a cash flow model or prepare detailed forecasts. I bet everyone would agree that it’s a more fun and efficient for that matter to focus on finding, landing and keeping customers. This is where procrastination sets in, before you know it you’re in serious trouble because you didn’t see the problems coming at you.
Since managing cash is the lifeblood of any business…I mean you can’t decide to just not pay your employees and no one gets into business to go broke…it’s critical that you focus some of your effort on actually worrying about it.
With that being said, it’s interesting to note that a whopping 82% of businesses that fail do so because of cash flow problems. With a statistic like that staring you in the face, I think we can all agree we all should take a bit of time out of our hectic schedules to make sure we’re on top of it.
But here’s the funny part, well it’s really not funny at all; more than 90% of companies across Europe, the Middle East and Africa don’t have a transparent view of their cash flow…that’s scary and we can only assume the statistics are also staggering for Canada and the US.
For many, bookkeeping and cash flow management can seem like a daunting task, more of a headache than anything else. However, after years of helping our client’s in this realm we thought it would make some sense to put together a quick list of hacks to ease some of the pain;
- Embrace Bookkeeping:
In order to dial in your cash flow management, you need to be reconciling your accounts (bank and credit cards) on a daily or at least weekly basis. This allows you to get an up-close visual of how your business is doing on a daily or weekly basis. I’m not advocating that you need to personally be the one handling this, however, having someone (internally or externally) making sure this is getting done is essential (see point 2).
After years of doing this, I can tell you it will revolutionize the way you do business. Your decision-making ability is on steroids, you can make faster and better decisions for your business. We have one client that requests financial statements on his desk each morning by 10am. By having this information at his fingertips each day, he’s grown his business enormously over the past two years.
- Get Experts Either Internally or Externally
The old saying goes “cash is king”, so make sure if you don’t fully understand proper cash management practices to involve experts. In most cases, you can keep the cost low by only getting help when you need it. You shouldn’t have to commit to yearly contracts and most local finance experts will be happy to contract on a month-to-month or hourly basis.
Putting tools and controls in place to manage your cash flow is key. By keeping a fully updated set of books via regular bookkeeping and building a strong foundation with advice you can make this a semi-automated process.
For example, one of our clients that does $10 million a year in revenue found that creating a simple spreadsheet to manage all their cash flows was going to be the easiest method as opposed to trying to program accounting software to do this. Remember, there’s two types of software out there; generic out of the box and customized.
The generic software isn’t going to be able to give you exactly what you need as every business is different. It will handle the regular tasks with ease but won’t allow for complex reporting. If you’re a small business, custom software is almost certainly out of your price range.
By getting an expert to help you develop some great Excel based tools, you can have the best of both worlds at a fraction of the cost.
- Track Down Unpaid Invoices
No one likes chasing people for money, but as a business owner you can’t stay in business long if you’re not getting paid. If you’re going to require advanced payment, stick to it and don’t let people talk you out of it…they are most likely going to burn you in the end anyway. Or you give them 30 day terms on their invoices and they take 90 days to pay. Actually, one in three companies in Canada are facing invoices in their accounts receivable ledgers that are over 90 days old.
We’ve all had this problem a few times, when it came time for the client to pay their bill all of a sudden there was an “issue” or they misplaced the invoice.
I’ve encountered this multiple times, there is never a mention of issues or questions regarding charges until the invoice needs to get paid. I’ve had clients add layers of complexity or make insane requests before paying our bills.
What I actually learned from this was to carefully curate your customer list, someone who is always gives you headaches when it comes time to get paid just simply isn’t worth the effort.
You’re better off staying on top of this and sending gentle reminders when customer invoices are overdue…and it won’t negatively affect your cash flow. Most of your customers will understand, things happen and people need reminders, occasionally you’ll run into someone who causes you massive headaches.
Manage your receivables like a bank, your bank doesn’t let you just make a mortgage payment whenever you want…they might give you a bit of grace but they’ll soon take your house.
Why should you let your customers grow their business by using the cash that should be in your pocket?
- Forecast The Future
A lot of business owners don’t see the value in forecasting cash flows for the future but it actually serves two purposes;
First, what you’re actually doing is setting realistic goals (make sure your forecast is rooted in reality). By “forecasting” that you’re going to bring in a certain amount of cash, it forces you to achieve that or you need to defend why you didn’t.
If you’re working with a finance expert, in most cases they should challenge you on why it didn’t happen and ask you to step up your game…do what you say you’re going to do because you’re only hurting yourself.
Second, virtually all forecasts actually differ to some degree between forecast and actuals. You’re going to have weeks where you hit your targets and you’re going to have weeks where you were over/under what your forecasted.
At the end of the day, forecasting allows you to make decisions today for where you want your business to go. By analyzing why things went as planned or why they differed allows you to dial in your business and become a cash generating machine.
- Hire Admin Help If You Need It
I actually hear people say a lot that they just don’t have time, I don’t get my bookkeeping done because I would have to go through all my receipts and I don’t have time for it. Honestly, we humans will try to find ways out of doing things that we aren’t interested in.
A simple solution to this problem, hit Kijiji (or similar site) and find someone offering up admin services part-time…there’s always at least 1-2 ads on there for this. Don’t bring the person in to do complicated tasks but things like filing or sorting receipts is pretty straightforward.
Just have a quick interview and if you think they’re sharp enough to handle it give them a shot. In most cases you can get this for less than $20 per hour because the skill set you’re looking for doesn’t require experts, you just need someone reliable.
Normally, you can pay between $15-20 per hour and it completely removes these boring sorting tasks from your plate. It will also make your bookkeepers life 100 times easier because the work is done. In some cases, your bookkeeper can even handle this for you and allows you to completely streamline this part of your business.
In my opinion, the decision is pretty clear you need to care about your cash flows and stay on top of it. It’s really like anything else you want to be successful with, the more time you devote to it, the better you become.
Every business owner wants to make money, and make a lot of it if they can but it takes effort. In most cases the solution to the problem can be insanely simple, outsource the bookkeeping and get the information fed to you in an easy to navigate format.
If you don’t think you know enough about cash flow management, devote some time to learning about it or pay someone to build you the tools you need to manage it.
It’s literally the backbone of your business and it’s your responsibility to make sure it’s a priority.