Cash Flow Management
What is cash flow? Put simply it is the incoming and outgoing cash in your business or personal bank account. Some of us are better at staying up to date with our cash flow than others, but that just means we have systems and processes in place to ensure we never go into the red.
Of course, I use QuickBooks Online to manage both business and personal finances and I have two different QuickBooks Online Plus subscriptions (because I am a total nerd and love the budgeting tool in the Plus subscription), I have two different bank accounts, credit cards and I keep all transactions separate so I can clearly manage cash flow for both. Refer to my article Why I love QuickBooks Online.
I know what you are thinking, but you are an accountant this stuff makes sense to you! Yes, but ignorance is not bliss in this case. This is a life skill you HAVE to implement into your life. The sooner you do it, the sooner you will take control of your finances and start controlling the outcome. Wealthy people do not become wealthy by turning a blind eye, they learn what they need to learn, they ask for advice or they seek help from experts. We are here to helpyou and we have outlined some key steps to implement into your life both professionally and personally.
Get Accounting Software
You’re probably thinking, why do I need this, can’t I just look at my Wells Fargo bank statement? Well, you can, but what about your Chase credit card and your Target credit card and your Bank of America Line of Credit….are you going to look at those each month and consolidate your spending so you can get a clear view on your incoming and outgoing cash flow? Let’s be real, you are probably not going to do that. Stop making things complicated, pay the minimum subscription fee and let the software do the heavy lifting.
Oh and if you have a business, and it wasn't obvious in my statement earlier be sure to spilt your personal and business finances into two separate accounting software subscriptions and bank accounts, don’t comingle – this is a big No No!
We recommend using QuickBooks Online, there are various subscriptions levels to suit your needs. Also, if you are a client of One Mode Consulting you get the QuickBooks Online subscription and payroll servicesat ~50% off retail price and add on Appsto enhance the software at ~25% off, as long as you are a client we pass this benefit onto our clients. Contact usto learn more.
Ok, now that we have all you finances in one place, let’s move on…
Process matters – is everything UPDATED?
Before we can run a cash flow report or even begin to understand what our incoming and outgoing cash flow is, we need everything up to date in our fancy new accounting software. Did you import all banking and credit card transactions, enter all invoices, cash receipts, deposits, bills and bill payments? Of course you did, ok next ensure you have reconciled the bank accounts and credit card statements – most people miss this critical step and they have duplicate or missing transactions. If you are asking how do I reconcile, click this Intuit tutorial on reconciling accounts. If your head is just spinning reading my words, consider the benefits of outsourcingit could be the key to success for your business.
Pricing and Payment Terms
The key to cash flow management is getting cash quickly and hanging onto it as long as possible. So how do we collect cash as quickly as possible? Every business is different, so I suggest reviewing your business, how you operate, what are your terms, and can you implement any new processes to expedite cash collection?
-Review your pricing and payment terms – are you offering 30 day payment terms after the work is completed? Can this be 7 days or 15 days? You know your business – challenge it!
-Subscription based pricing – reoccurring revenue is critical to mitigate cash flow fluctuations and ensure you have a guaranteed revenue stream each month. It helps you sleep like a baby at night knowing what next month brings.
-Create more income streams – easier said than done, but not impossible. You should always be evaluating your business, how is the environment changing and how you can innovate and be a leader in your space?
-Take a deposit before a project begins – Are you commencing a big piece of work or a long project, there is no reason your business should have to fund this new project in the beginning stages. Review your terms and start collecting deposits from customers.
-Progress invoicing – do your projects last weeks or months? Well there is no reason to delay the cash flow coming into your business because the project is not complete. Ensure your customers know your terms – for example communicate you progress bill weekly or outline the critical stages of the project in a contract that the customer signs.
Invoicing and receiving payments
Ok now that we have reviewed our pricing and payment terms, let’s review how we get paid. I know clients that still wait for checks in the mail or drive to clients to pick up checks and then go to the bank and deposit them. Are you freaking kidding me!!! What a waste of time, it doesn’t have to be this way.
Make it as easy as possible for your customer to pay you. Again, we are focused on expediting the process of cash collection.
Professional Invoices and Invoice Reminders – In QuickBooks Online, you can create customized invoicesthat are professional and can be emailed directly to the customer (no more snail mail). Make sure all the required information is on your invoice, people don’t have a lot of time so if you can make your invoice clear and concise it will reduce the chances of a customer having questions. Reducing questions or uncertainty will make it easier for the customer to pay you. In addition, one of my favorite features is the reoccurring invoice option, set it and forget it. Another favorite option is the invoice reminder, we all get distracted by responsibilities on our plate so a little nudge is helpful sometimes when we simply forget.
Free bank transfer – QuickBooks Online offers smart online invoicing with built in payment processingto get paid 2 times faster! Create a smart invoice in QuickBooks Online, click save and send. It emails the customer right then and there and all they have to do is click the big button that says “PAY NOW”. Boom - done and the cash is en route to your bank account.
Credit card payments is an option as well with QuickBooks Online smart online invoicing, but there is a feeattached to this, it works just as easy as the free bank transfer. Remember we are trying to increase our cash flow, so if your client is adamant about paying with credit card tell them there is a 3% processing fee to do so and if they want to pay the fee then by all means offer the option. In some businesses, it might be wise to offer this payment option and cover the cost of this processing fee – What are your competitors doing? Does this option actually make it easier to convert the transaction? It’s your business, review what’s best for cash flow.
If you are on the go constantly or collecting payment from your website, Squareis a popular choice for integration. They offer a free magstripe reader to swipe credit cards anywhere on a device. They also offer point of sale options and they integrate to your website. Link them directly to your QuickBooks Onlineaccount to have all activity directly imported – no duplicate entry required.
For subscription or membership-based services, consider using a software and merchant provider that stores the credit cards on file (with the customers permission of course) and charges customers monthly. Each industry has various options to suit the business so do your research, link directly to your bank account and watch the cash flow in. My clients in the fitness & gym industry prefer Wodifyfor the all-in-one gym management and billing platform.
Bills, Making Payments and Payroll
Ok so the not so fun part, paying bills. It’s part of business and necessary to make the economy continue so let’s get on top of it.
Bills and Making Payments - In order to understand cash flow we need to know what bills to pay and when, you first need to enter all bills into your fancy accounting software with the correct terms. Once you do this you can run reports on which ones to pay when. If you pay bills once a week – say every Friday I would be looking at what bills are due this week and pay as required, but I would be looking forward as well, which is my next point.
Cash Flow Forecasting - How much money do we have in the bank to pay bills for next week and the week after that? What is the worst-case scenario, if we didn’t receive another dollar into the business how long can we stay in business? Ok, that’s not going to happen but good to know the facts, now incorporate the cash you are collecting into the business and when. Forecast that out – for most businesses I recommend doing a three-month rolling forecast. There are a lot of bills in business that are reoccurring, so it makes it really easy to forecast them out each month. For the other expenses estimate them, this is where good budgeting is critical, but this is another topic for another post. I have way too much to say about budgeting and the benefits – if you are not doing it YOU SHOULD!
Payroll – if you have payroll and you are collecting the payroll taxes from your employees to then remit to the government and state, you better pay up timely. Whatever you do, DO NOT use this cash to fund other bills that are due in your business. The government and state are not messing around with this and it scares the heebeegeebees out of me! That’s why I always recommend to my clients they use a full-service payroll provider who withholds the taxes both employee and employer and remits it timely. There are so many payroll providers to assist businesses with compliance and reduce the time-consuming process for a minimal fee. I recommend QuickBooks Online Full-Service Payrollas you can enter all the time in the Online subscription you already have and transfer that directly to the payroll provider and it is already in your accounting software - no journal entry required. Easy-Peasy!
Credit card with 0% APR – There are so many credit cards out there that offer 0% APR for an introductory period. Take advantage of this, BUT this does not mean you can go on a spending spree – NO that is not what this is for. This is available if you have credit card debt and you need to consolidate and do a balance transfer. Do this immediately to reduce interest you are paying on debt. This is contingent on good credit, which brings me to my next point.
Run your credit report – if you are not checking your credit report on a regular basis you should! Technology is amazing, but it has made us more susceptible to fraud. I check mine monthly to ensure nothing usual happens. Checking your credit report can also give you indications about what is benefiting you and what is hurting you. If you need a line of credit this will be a tool to give you insight on what you need to fix.
Pay off debt – If you have a lot of debt you need to put a payment plan in place, rank your debt obligations from highest interest to lowest and start paying extra on the highest interest rate debt first – your goal is to get RID of it and then move on to the next one.
Late Fee’s - just don’t be late – hopefully the steps I have outlined above can help you take control of your bills and manage you cash flow tightly, so you are not paying late fees. Don’t let that happen, it’s a waste of money!
Bottom Line
I hope I have provided some ideas to help you manage your business and personal cash flow. There is a lot of information and the more complicated your business is the more challenging your cash flow can be. Don't worry you are not alone, we are here to help. We have experts at One Mode Consultingto help you get on top of your cash flow and set your business up for success. Contact usto learn more about how we can help you manage your cash flow better.
