Crush these 5, watch your cash flow grow

April 5, 2017 by Michael O’Hanlan

A new year means new challenge for business owners. Every year, Wasp Barcode Technologies surveys small businesses to see what they’re worried about the most. For 2017, 34 percent of the business owners surveyed considered cash flow to be their top challenge.

To keep on top of a business’s cash flow, business owners need some system to track their financial activity, which includes receipts, checks, deposits, etc. Grocery bags and shoe boxes are places to stash financial documents that business owners need to determine how much they owe, how much they are due, and how much they have.

When it comes to cash flow, there are five issues business owners need to tackle first.

Issue 1: How much cash do you currently have?

The key to knowing this is in your bank account and your bank statement. Despite this being a computerized age, both humans and computers make mistakes. A human can enter the wrong number, and the computer can misread what it scanned.

So you should not rely on checking your online bank balance alone because having bills you owe (credit cards) and having outstanding invoices and deposits you have not received are not reflected in your bank account.

Solutions

  • Review and download your bank’s activity on a weekly basis at least. Make sure there is a customer or vendor name assigned to it, or else you cannot research vendors or customers.
  • Balance your bank statement each month. Reconciling your bank account to your own accounting system is the way to find any banking errors and show the bank that you are responsible with money, in case you need to apply for a bank loan or win a contract.

Issue #2: Can you fund the next payroll?

If you have employees, you are required by law to pay their payroll per their employment agreement. You are also legally required to pay all taxes associated with the payroll (federal and state, FICA, unemployment, etc.).

Solution:

  • Review your upcoming payroll to see that there is enough money to cover it. If you use a payroll service, check with them to see how much you need to have for them to process your payroll.
  • Check both your accounting software’s cash balance and the balance that shows in your online bank account. Is it enough to run the payroll? Yes? Great! No?
  • Review your outstanding invoices and call to collect on them.
  • Hold off paying bills so you have enough money on hand for the payroll and then pay bills with what is left.

Issue 3: How much do you owe, and do you have the cash in the bank to pay it?

When it comes to paying bills, timing is everything. People pay by writing a check immediately or holding on to the bill to pay when the due date says it is due. Paying bills too quickly, too early or in too large a quantity can empty your bank account, leaving you with nothing to pay payroll the next day.

Solution:

  • Check both your accounting software’s cash balance and the balance that shows in your online bank account. Know that number before proceeding.
  • Organize your bills by the date they are due based on the “TERMS” field on the invoice. “Immediately” means, well, pay immediately while “Net 15” means you need to pay 15 days from the date on the invoice.
  • Decide which bills you need to pay and what bills you can pay.
  • Review your Accounts Payable on a weekly basis. Refer to your accounting system’s Aging Report to determine how old the bills are and decide which ones to pay first.

Issue 4: How much are you due in outstanding invoices?

Customers follow the same philosophy when it comes to paying their bills. They can sometimes hold on to invoices until the due date, which ties up the money you need.

Solution:

  • Organize your invoices by the date they are due. By putting a “terms” or “due date” field on your invoice, you’ll have a better idea of when you can expect the money.
  • Review your Accounts Receivable on a weekly basis, including the Aging Report, which lists your outstanding invoices. Anything invoiced over 30 days merits calling the customer/client to collect. Not receiving invoices when they are due can bankrupt you.

Issue 5: How many hands are involved with the money?

This is a delicate issue, but a real one. Money is a temptation to most people. If you do not monitor your money, you can make mistakes that will cost you. You can also have staff or partners steal or embezzle your money leaving you with all the responsibility and debt, but no funds.

Solution:

  • Limit check signing to one person, preferably not the person doing the accounting. Verify vendors and clients to your accounting system.
  • Do not slack off when it comes to keeping track of your money, because if you do, it allows questionable folks to see a backdoor through which they can take your hard-earned money. Keeping track of money may not the most fun or glamorous, but it is absolutely necessary for a business to thrive. Do not run away from it. Instead, try to make your finances part of every week’s review. If you keep current on cash, payroll, bills and invoices, then you can budget the future and grow your company.

What would your business do with increased cash flow?


R. Michael O’Hanlan Consulting is a small business/government contracting accounting firm based in Falls Church.  Michael O’Hanlan, CEO, is an Intuit/QuickBooks ProAdvisor, certified in both Desktop and Online versions QuickBooks  Michael serves a very diverse clientele and he creates individualized solutions for each client resulting in client financial peace of mind and empowerment.  Clients can then carry out their mission more successfully and profitably. Connect with Michael on Facebook, email: michael@rmohc.com or give him a call at 703-389-0098  to discuss your business needs.

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