Controlling Cash

Cash flow is a huge part of every business owner’s daily lives.  It can cause stress and anxiety, or it can be a tool that can be used to help a business grow and thrive.  Which one is it for you?

Cash Flow Basics

I talk to a lot of business owners who are scared of cash flow.  They know they should be taking more time to analyze cash coming into and going out of their business, but don’t want to.  Many people would rather bury their heads in the sand and hope they have enough money to pay the bills each day.  I’ve seen a lot of people getting help for COVID without having any plan on how that money will help them survive and possibly thrive over the coming year.  They are just using the money as a band aid for cash flow problems that started long before COVID.  Without having a full picture of your cash flow in the past and projected cash flow in the future you will always be anxious and worrying about if your business will survive.

So what is cash flow and how can it help?  Basically cash flow is all of the money that is coming into your business and going out of your business.  This includes money coming in from daily operations, from loans or grants, and from investments by the owner of the business.  Money going out includes daily expenses, loan payments, credit card payment, and money you take out of the business as the business owner.

Can't I Just Look At Bank Statements?

A large number of small business owners just look at bank statements each month to see their cash flow.  While technically that does tell you the money coming in and going out of your business you don’t actually learn anything from it that will help your business in the future.  Just because this month you had enough money to pay the bills and pay yourself, that doesn’t mean you’ll have enough next month.  How do predict your income and expenses if you are only looking at the amount in your bank account once and a while?  Your bank account balance doesn’t tell you the whole picture.  It doesn’t tell you what checks you have written, but have not been cashed yet.  It doesn’t tell you about the high expenses you have next month because annual dues for many vendors occur the same month every year.  It doesn’t tell you that your balance has been gradually decreasing since you received a loan 6 months ago, and without any changes you will be out of money in 3 more months.  It doesn’t tell you that payroll is due next week, but you just took out money for yourself and now you won’t have enough to cover those costs.

Where do I start?

Now that you realize that keeping an eye on cash flow is important, what do you do about it?  The first thing, make sure your bookkeeping is getting done accurately and efficiently.  Your bookkeeping should be finished in less than two weeks from the end of the month in order to get the most data from the reports.  Then, if you haven’t done so already, learn about the financial reports that you should be looking at that will help you with cash flow planning.  Once you understand your financial statements, then you can create a budget and cash flow forecast and take control of your money!

Using your finances to analyze your cash flow will help you create plans for your business, decrease money stress, and steer your business in the direction you want it to go.  Need help, contact me!

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