How do you know where to go if you don’t know how to get there? Understanding your cash flow is essential to your business. Simply knowing that your business generates and costs ‘X’ dollars a day/month/year isn’t enough to guide your decision-making process. A financial analysis of your business is essential to making short, medium and long term business decisions.
The first step is basic — take a good look at how your money is being managed, and by whom. Excel spreadsheets? Word documents that have notes scribbled on them? A filing system that consists of ‘to pay’ and ‘to bill’? And who is managing it? Your mom/ sister/ brother/ uncle? Temp help? The office administrator? Gather all your notes and scribbles and say, “Thank you very much” to your overachieving but under-qualified money manager and proceed to the second step.
The second step is to gather your financial scribbles and ‘get organized, baby!’ You need software to manage your money, and people with the know-how to organize it. Quickbooks is by far the most popular small business accounting software, and Quickbook Pro Advisors are easily found, even specific to your industry. Buy it, install it, and hire someone to manage it. A QUALIFIED Quickbooks advisor is essential, they will save you time and I promise you, lots of money in the long run. Check references and use your network for referrals. There are lots and lots of good bookkeepers, but you need a GREAT bookkeeper. Hire them, and pay them well, as they will become your backbone in your growth.
Your bookkeeper is also your lias to your CPA. You don’t need to be paying your CPA (at CPA rates) to sort through your receipts. You need to understand your receipts. And your CPA more often than not will not have the time for the daily/ weekly/ monthly analysis of your finances.
Third, if you are not familiar with accounting software, make the time to sit with your bookkeeper at least once a week in the beginning, then minimally once a month to go over your Profit and Loss and your Balance Sheet. You will start to become familiar with where your money is going and begin to understand how to manage it. A good bookkeeper should be offering suggestions and being proactive with how you can save money, negotiate rents, establish credit and be a good source for general financial know-how.
Last, make financial goals. Once you understand your customer profile — where, when, how and by whom your money comes from — start to make goals on how to keep increasing that dollar amount in your bank at the end of each quarter. If you are a retailer and Mondays and Wednesdays become a trend as the slowest days of the week, adjust your staffing to reflect that. If your vendors are adding ‘fuel fees’ to your deliveries (and more and more are), consolidate and organize your inventory so deliveries can be made once a week instead of twice. Get the picture?
Understanding your cash flow makes you a stronger and more sound small business. You will be smiled upon by the financial gods who rule over your line of credit and business loans. And you will be rewarded with minimal (or nominal!) financial fees, better interest rates, and bigger loans with better terms.
