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The 13-Week Cash Flow Forecast

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One of the best tools to forecast cash requirements is the 13-week cash flow forecast. It can help a business owner predict what their cash balance will be 13 weeks in the future. It helps to answer whether there will be enough cash to cover payroll and bills for a particular week. If you’re having significant ups and downs in your cash balance, it’s the perfect tool to help gain clarity around your cash needs. Thirteen weeks may sound like an odd length to select, but it’s the length of a calendar quarter. This is the length of a financial projection that is typically used when a business is in financial distress; however, it’s also useful when a company is going through some ups and downs or simply wants to get a better handle on its cash requirements. The forecast computations start with entering cash receipts and cash disbursements into a spreadsheet. Start with actual spending and receipts for the first week, then use estimates for the remaining weeks. Include planned expenditures such as overhead, payroll, and loan payments. Add in inventory purchases. Project your receipts based on history or recent changes in your business. Once you’ve completed your forecast, you can make changes and do what-if scenario planning.  For example, if the forecast shows that you will run out of cash in week seven, you have some time to decide what you need to do to remedy the shortfall. Options might be:
  • Accelerate the collection of 30 percent of your receivables.
  • Dip into your line of credit to cover a portion the shortfall.
  • Furlough 10 percent of your workers.
Plug your selected scenario into the forecast to see how much that relieves your shortfall. The benefits of creating a 13-week cash flow forecast are many. You can see what actions need to be taken and when to take them well ahead of time. You can also see how much of an action you need to take. For example, instead of furloughing 50 percent of your staff, you may only need to furlough 25 percent.  Or instead of borrowing $50,000, you might only need $20,000. The cash flow forecast can also save time when developing your annual budget. Budgets are especially useful when business conditions are volatile or when business owners need all the clarity they can get. Try your hand creating a 13-week cash flow forecast for your business, or reach out to us for help any time.

Building a Continuity Plan for Your Business

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At the beginning of 2020, you might have thought that developing a business continuity plan was not a top priority. Or maybe you thought it was only for large businesses. Fast forward to today, and a business continuity plan has become an essential staple in business planning.

There are more business risks than ever before to consider that can affect business continuity. Businesses are being shuttered, reopened and shuttered again from the pandemic, fires, hurricanes and damage from riots, just to mention a few of the more common issues in this unusual year.

The biggest benefit of a business continuity plan is the process of developing it. It helps you think through the steps you should take if a business interruption occurs. If you have a disaster recovery plan – or even a few steps jotted down of what you’d do – then you have already started a portion of the process.

Here are some of the major pieces of a business continuity plan to consider developing for your business.

Roles and Responsibilities

In this section, all of the business stakeholders should be identified and listed. On a high level, questions like these should be answered:

  • What is each person’s role within the company, and how would that change if the business is interrupted?
  • What new skillsets should be acquired in the case of a disruption?

Potential Impacts to Your Business

This part of the continuity plan lists major scenarios where something could go wrong with your business.  It should include things like weather events, fire, riots, theft, leadership interruptions, cash flow shortages, and the long-term impact of the pandemic. For each event, an analysis should be made as to how it will affect the business and what possible outcomes could occur. This part is also called a Business Impact Analysis.

Recovery Strategies

Once you’ve identified impacts, the next set of questions covers how to most effectively recover from them.  These remedies might include seeking additional financing, selecting backup locations, checking IT department functionality, creating alternate supply chain and distribution sources, and identifying many more actions along these lines.

As we’ve seen this year, this is just as important to think through for small businesses as it is large businesses.

When owners and employees are not in the middle of an actual disaster, they can better map out a recovery strategy that’s optimal and cost-effective for the business.

Implementation

A good plan should be implemented through distribution, testing, and training. All stakeholders should read and understand the contents of the business continuity plan. The plan should be tested in drills and exercises when possible. Employees should be trained so they know their part and feel comfortable carrying it out while under high stress.

The long-term viability of your business is important, and it can be strengthened when you put a business continuity plan in place.  If we can help, feel free to reach out any time.

3 Essential Metrics to Determine Your Marketing Spend

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The only way to best understand how to invest your marketing dollars is to document and measure what’s happening now in your business.  What you’ve measured, you can then improve.

Marketing Spend

The first step to measuring what you spend on marketing is to add up all of the costs.  They may be in one account or several.  Some of the places to look for marketing expenses include:

  • Advertising – for online or print ads, trade shows, sponsorships, and other advertising costs
  • Dues and subscriptions – for membership fees to networking and professional associations
  • Education – for marketing training
  • Marketing – for obvious reasons
  • Office supplies – for graphics subscriptions and fees
  • Payroll, salaries, and wages – for allocation of employee time spent on marketing projects
  • Printing and postage – for flyers and direct mail
  • Professional fees – for marketing consultants, coaches, designers, and writers
  • Software/Technology – for marketing software and apps
  • Travel – for trade show or conference attendance

Once you have reviewed all of these costs, you’ll have a good idea of what you’re spending on marketing and you can calculate the first metric, marketing spend.  The formula is:

Total marketing costs / total gross revenue = Marketing spend

This gives you a percentage.

Most companies spend five to ten percent on marketing. Higher growth companies will spend close to ten percent, and stable growth or slow growth companies will spend close to five percent. Large companies will spend more, from nine to 12 percent of gross revenues, than small companies.

CAC – Cost to Acquire Customer

Probably the most important metric for marketing is how much it costs on average to acquire one customer. To compute this, count the number of new customers for any period of time, and use this number in the following formula:

Total marketing costs / number of new customers = CAC

A more granular version of CAC is CPA, cost per acquisition. Unlike CAC, CPA is measured by campaign or marketing channel, or the source of how the customer was acquired. Example marketing channels include email marketing, social media, and paid ads, to name a few.

Revenue per Customer

Revenue per customer is a good measure in many companies.  It can tell you how much, on average, a customer will spend at your company over a period of time, adding up all of the orders, projects, visits, or engagements for that customer. The formula is:

Total revenue for a period / total number of customers for the same period = Revenue per customer

A similar metric that’s valuable is how much a customer will spend at your company in their lifetime. That’s called CLV or customer lifetime value.  Use the same formula above but compute it based on the longest period of time you have records for.

When you can compare revenue per customer or CLV with CAC, you can determine how much you can afford to spend to acquire new clients.

Using the metrics above will help you determine the best way to invest your marketing dollars.

The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps

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Have you been thinking about starting your own business? Being your own boss is the dream of many people, and every year, thousands of people take the courageous step of becoming an entrepreneur.

If you are thinking of starting a business or have already started a business, here is a detailed checklist of items to consider to get your new business off to a great start. 

1. Make a plan.

There are a lot of moving parts to a new business! You’ll want to get organized (or get some help becoming organized if this is not your skill) and think about how some key functions in your business will work.  Some of the topics and/or questions to consider when developing your plan include:

What will you sell? 

We’ve found there are really two types of entrepreneurs.  The first is someone who knows exactly what type of business they want to be in because they have a skill set or background in it. They have a good idea of what they want to offer the marketplace. 

The second type of entrepreneur is one who simply wants to be an entrepreneur. They may look for a franchise that already has some structure to it or a business to purchase where the owner is retiring or simply wants to sell. They don’t really care what products or services they sell, they just want a successful business to run. 

Who will you go into business with?

Do you want to start a business by yourself, or do you want to find a partner? Many people start businesses as solos and then add partners or merge with other businesses to grow or expand. Everyone is different, but it’s something you need to work out before you get started. 

You’ll also want to consider how you will build your management team.  Initially, it can be yourself along with vendors you hire like accountants and attorneys that have skill sets that you don’t. As you grow, you’ll need people to head every function in your business, such as Sales, Marketing, Finance, Operations, Human Resources, IT, and Strategy.  

Who wants to buy what you are offering?

Is there an established market for what you intend to sell? Or do you have something that is one-of-a-kind? What competition do you have, and why will your offering stand out? 

To answer this question, you’ll need to perform a market analysis that will help you see if you have competition or if you are blazing a new trail. From there, you can plan your marketing and sales activities so that potential customers wll be able to find you.

Will you be able to generate a profit?

Almost anyone can start a business, but making a profit requires planning, preparation and skill. That’s why you’ll want to crunch your numbers to make sure your business is viable. You may need the help of an accountant or financial consultant to help you complete your plan.

What is your company?

Take a crack at describing your new company. This may be the start of your mission, vision, and values statements as well. 

Once you’ve answered these basic questions about your business, you can write it up and put it all together in a business plan. The last step is to write your Executive Summary, which will go at the beginning of the document. 

You don’t have to write a business plan unless you need one to find funding, but the entrepreneurs who do have an increased chance of surviving their first few years. 

2. Make a budget.

A budget clarifies the financial aspects of your business.  How much overhead will you have? How much startup cash do you need? How much revenue will you need in order to sustain your business on an ongoing basis? 

In addition to a budget, think about how you want to measure your financial results on an ongoing basis. What metrics do you want to know about on a monthly basis?  What reports would be useful for you to make good business decisions about opportunities?  These answers may not be clear when you first start, but they will become clearer over time, and a good accountant can guide you along the way.

3. Choose your organizational structure.

Should you choose a sole proprietorship to keep down initial costs, or should you incorporate your new business? There are many choices when it comes to entity selection for your business, and they vary state by state. The most common ones include sole proprietorship, partnership, limited liability company, S corporation, C corporation, and nonprofit. These choices have both tax and legal consequences, so this decision is best made with the advice of a professional attorney, CPA, or both.

If you incorporate, you’ll need to select the state you want to do business in and file incorporation papers with the proper state agency. But before you do that, you’ll need to name your baby!

4. Name your baby.

Your new business needs a name, and this can be an exciting step! It’s important too. The business name is the first item that displays your company culture and your business identity to the world.

Once you’ve decided on a name, you should register it with your local county. In some states, this is called an Assumed Name; in others it’s referred to as a Fictitious Name or DBA. You may also want to trademark your business name; this is done at the national level by industry.

5. Get an address and phone number.

Will your business need a physical location?  In this step, you’ll need to decide what address and phone number you’ll use for your new business. If you work at home, you can always get a mailbox at a place like Postal Annex, The UPS Store, or even the post office.  This won’t always work for a street address, but it’s something you can put on your marketing materials so your business looks more permanent.

Choosing the phone is important too. A cell phone alone is not really high enough quality for a business, but many people start out this way.

6. Get an IRS number.

If you remain a sole proprietor and don’t hire any employees, you can use your social security number as the number that the IRS needs for filing your taxes. In other cases, you’ll need a different tax ID number from the IRS.

You’ll need this number for several things, such as filing income tax return, filing payroll tax returns, opening bank accounts, and getting paid in some cases.

You can now complete a form online to get an IRS number.  This page from the IRS.gov website explains more: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

7. Open a bank account.

Once you have your Fictitious Name document or your incorporation papers, you can open a bank account for your business.  This is a big step too, and a good time to start involving an accountant. 

8. Find an accountant.

You may have already have enlisted an accountant to help you with your business plan and budget. But if you haven’t, now is a good time. You’ll need to make many decisions regarding the accounting functions in your business, such as:

  • Selecting the accounting system you need and getting it set up correctly to record and track your accounting transactions.
  • Getting help with federal and state tax requirements, including collecting state and local sales tax if applicable.
  • Getting help setting up accounting processes such as invoicing customers and collecting money.
  • Getting any financial questions answered that you may have.

9. Get insurance.

Protect yourself and your new business by making sure you have all of the right insurance policies set up.  Here are a few areas for you to consider covering with insurance policies:

  • General liability
  • Building and property coverage
  • Errors and omissions
  • Workers compensation
  • Umbrella
  • Auto insurance
  • Identity theft

10. Hire an attorney.

An attorney will come in handy when you first start your business as well as act as a resource when legal issues arise in the normal course of business. Initially, there are many legal documents to set up:

  • Contracts with customers
  • Terms of agreement for your website and any other client-facing applications you may provide your customer
  • Privacy policy
  • Employment offer letters and agreements

You may also want an attorney to review any vendor or partner contracts that you will be a party to.

11. Get paid.

How will you collect money from your customers?  You should have opened your bank account already (see #7 above), so you can get paid when someone writes you a check. But that’s typically not enough options to give your clients. They may want to pay you via credit cards, PayPal, or even bitcoin.

To take credit cards, you can start with PayPal for business, but eventually, you will need a merchant account, which enables you to accept credit cards from your clients and get paid via your bank. Applying for a merchant account is similar to applying for a loan.

If you use QuickBooks, you may be able to collect money through Intuit’s payment options. You might also be able to collect money via your point of sale system or your online shopping cart software. Let us know if we can help guide you in this area. 

12. Get specialty and local licenses.

Depending on the type of business you have, you may need additional licenses and permits to operate. For example, if you plan to serve alcohol, you need a liquor license. If you’re a hairdresser, you need a cosmetology license. 

You may also need local licenses to operate in your county or city.  Check with your local city or county offices to see if a business license is needed.  Even if you are operating out of your home, you may need this kind of license. 

Starting Your Dream

Hopefully, these twelve steps will make your entrepreneurial journey a little smoother so you can begin to accomplish your lifelong dreams of owning your own business.

If we can help you along the way, especially with your accounting, tax, and business advisory responsibilities, please reach out any time.

Download the PDF version of “The Entrepreneur’s Guide to Starting a Business in 12 Easy Steps” here.

105 Ways to Speed Up Cash Flow in Your Small Business

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One of the top challenges for small businesses is managing cash flow effectively. There are times when the most experienced business owner can run short just before payroll day or get into trouble because they didn’t plan for a large expenditure.

Not having enough startup cash causes a significant number of small businesses to fail each year. According to C2FO, three-quarters of small businesses need more cash for increased liquidity, expansion, inventory and equipment purchases, employees, research, and contingency planning.

In a 2016 report from JPMorgan Chase, most small businesses were found to have enough cash to cover only 27 days of expenses. And getting funding is no picnic, as more than a quarter of all businesses that apply for loans are turned down (NSBA).

The good news is there are more than a hundred ways to increase your cash flow, and some of them are very simple to implement. Here’s a list to help you manage your cash flow more effectively in your business. 

Receivables

Let’s start on the receivables side first.

  1. Invoice customers promptly. Make sure your invoices go out quickly, right after you’ve performed the service. If you’re waiting until the end of the month to invoice, you’re increasing your DSO (Days Sales Outstanding) and staying with decades-old habits that no longer serve your business.
  2. Send your invoices electronically. Invoices sent by email will get there faster and shave days off of the wait to get paid.
  3. Use fast payment methods, such as credit cards and ACH. Especially on recurring payments that happen month after month, set up automatic payments so you don’t have to worry about collection.
  4. Make deposits faster. If you’re waiting until the end of the week to make all of your deposits, change your practice to daily. You can make deposits with your cell phone now, so take advantage of these newer banking methods to speed up your cash flow.
  5. Make your invoices clear as well as fun. Nothing delays a payment more than an invoice that doesn’t have clear instructions on who to make the check out to, where to mail the check, what the bill is for, and what the total amount due is. Look over your invoice format and revise it if it’s not easy to understand. 
  6. Some customers may have specific invoicing requirements. This especially true for large companies, government agencies, and nonprofits. Meet their requirements so it won’t hold up your payment.
  7. Revise your payment terms. Payment terms like due upon receipt or net 30 days are too common. You will actually get paid faster with terms like net 13.
  8. Use a variety of payment options so customers can choose. Include popular credit cards such as American Express, Visa, Mastercard, and Discover. Consider letting clients pay by PayPal, Apple Pay, Amazon Pay, Google Pay, debit cards, digital wallet, echeck, paper check, ACH, cash, and if you are really adventurous, cryptocurrency.
  9. Offer an early pay discount to get paid faster, especially if the invoice is going to government agencies or large corporations. Some have policies that require that they take the discount.
  10. Collect the right amount of sales tax on all invoices. If you make an error on sales tax collection, you’ll need to make it up out of your own pocket. Make sure this liability is correctly recorded so you don’t overspend before it is remitted to the state.
  11. Pay attention to payments that fail. This includes credit cards that are declined, ACH collections that fail, and credit cards with expiration dates that are about to expire. Put processes in place to get these items corrected quickly.
  12. Implement a collection process for payments that are past due. Take action at key points, such as 7 days overdue, 14 days overdue, et cetera. Use your accounting software to re-send unpaid invoices.
  13. Run a credit report on any vendor that you plan to give credit to. Grant them credit as appropriate.
  14. Cut off services to customers who are past due more than 45 days (or a time frame you choose).
  15. Verify and maintain current contact information for all of your customers so invoices are timely received.
  16. When clients do pay, apply their payments promptly so they won’t get past due notices.
  17. Consider sending monthly statements to customers that have a large number of outstanding invoices.
  18. Review your accounts receivable aging report on a weekly basis and take personal action on the accounts that need your focus.

Payables

Here are some things to consider on the payables side.

  1. Record your bills in your accounting system so you can track what’s due.
  2. Enable credit card bank feeds in your accounting system if you make charges to your credit card.
  3. Don’t mix personal and business expenses. Even if you don’t have a business credit card, you can use one personal credit card to make your business expenses and that will keep them separate.
  4. Pay credit cards off each month if possible. If not, refinance to a lower interest rate.
  5. Make payments on the last day possible to avoid fees and to stretch your cash. You can easily do this with good accounts payable software.
  6. Take early pay discounts when offered.
  7. Avoid late fees by paying vendors on time.
  8. Set up approvals for purchases, even for owners, so that everyone has to think before they spend.
  9. Require monthly recurring fees to be re-approved at least once per quarter if not more often.
  10. Consider using purchase orders on purchases over a certain amount so that they can be pre-approved.
  11. Re-negotiate payment terms with vendors if needed.
  12. When paying bills, use three-way matching: the purchase order, the shipping receipt, and the invoice.
  13. Pay payroll taxes on time to avoid hefty penalties. Better yet, get a payroll system that makes payments for you and assumes the liability if they are late.
  14. Double-check invoices to make sure you made that purchase and to make sure you received the service or product you are being billed for. Many fraudulent bills are sent to unknowing companies.
  15. Put in place a process for duplicate bills so they are not paid twice.
  16. Track your check numbers to make sure there is no missing stock.
  17. Lock up your check stock and make sure only authorized personnel have access.
  18. Check with the bank every six months to view the signature card for your bank account. Remove any unauthorized people immediately.
  19. Track credit card access and use carefully. Cancel cards and accounts that you can’t account for.
  20. Calendar in annual contract renewals that have automatic payment setup 30 days before they renew. You may want to re-negotiate that contract and this is the time for the best leverage.
  21. Make charges to credit cards if you can manage them well. Then you’ll be able to dispute any payments that are not legitimate.
  22. While you might not get a tax bill, you should make tax projections and pay estimated taxes throughout the year so you don’t have a huge liability and penalties in the spring.
  23. Make loan payments timely to avoid late fees.

Cash Management

In the area of cash management, there are lots of tips:

  1. Prepare a cash report daily to track cash in and out to get a better feel for what your company needs. The average small business brings in and takes out about $350 each day.
  2. Create an annual budget and stick to it. That way, you’ll know exactly what you need to do to reach your profit goal.
  3. At least weekly, review your cash in and out to get a feel for how your balance fluctuates.
  4. Know what your bank charges you on a monthly basis. Shop around for better bank fees if yours is too high.
  5. Make sure your merchant fees are competitive. If you are paying too much, look for a better merchant services vendor.
  6. Does your business have cash expenses? If so, create a petty cash fund, keep the receipts, record the transactions properly, and replenish the fund correctly.
  7. If your business is seasonal, prepare for the slow times so you are not caught by surprise.
  8. Periodically check your credit score to make sure there is no fraud or identity theft.
  9. Stay up to date on your accounting, especially your bank reconciliation, so there are no chances for overdraft and the expensive fees and embarrassment that goes with it.
  10. Make sure you have the best accounting system for your business. Too little can cause errors and inadequate data. Too much and your learning curve and time spent are too high.
  11. A great cash trick is to hide some of it for a rainy day. This can be done a couple of ways. If your cash balance is $15,000, record it as $10,000 so you have a $5,000 cushion. Never go below the $10,000 with your spending.
  12. Do a cash flow projection on a regular basis. If you have a loan, you may be able to pay it off quicker, saving interest fees. Or you may need to borrow more.
  13. Just because you have credit doesn’t mean you should use it. Borrowing more than you need causes excess interest expense which reduces profits.
  14. Plan for slow times, emergencies, sicknesses, or other disasters by having some cash set aside, enough to cover at least 60 days of expenses.
  15. Work with a professional to create a cash flow forecast for several months in the future. This can be done with cash flow software or financial dashboard software. Done well, you’ll be able to see the future of your business. Some software will also let you do what-if analysis so you can plan for large purchases.

Revenue Generation

  1. Review your sales reports every month for accurate classification and reasonableness.
  2. Compare your actual sales with your sales forecast. Adjust your marketing plan, budget, projections, and forecast as needed.
  3. Manage your pipeline of prospects to make sure it is always full. You should always have activity for collections coming in, receivables being billed, customers being serviced, estimates awaiting approval, and prospects calling, making appointments, or visiting the store or office.
  4. Offer clients a range of shipping options so they can get their items in the timeframe they need.
  5. Make sure sales forecasts are realistic, especially with an eye to seasonal and market fluctuations.
  6. Are you spending intelligently when it comes to marketing? Track each campaign and repeat only the ones that are generating a good return on investment for you.
  7. Determine the right metrics to track for your business so you can stay on top of your business’s revenue performance and make smart business decisions.

Expense Management

  1. Review your income statement expense balances every month for accurate classification and reasonableness.
  2. Compare your actual expense balances with your budgeted expenses and manage the differences. Adjust the budget, projections, and forecast as needed.
  3. Before purchasing items from a vendor, get three estimates from various vendors. This keeps you from buying in the heat of the moment and becoming vulnerable to an aggressive salesperson.
  4. Before you purchase, ask yourself if it’s necessary and if you will really get a return on investment from it.
  5. Before you hire, make sure your customer processes are as lean and efficient as possible.
  6. When you hire, make sure you’ve planned for the learning curve/training period based on skill set.
  7. Don’t forget that employee benefits, raises, vacations, and sick time are all part of the overhead your business must incur. This should all be factored into the pricing you have for your products and services.
  8. How much do you pay yourself? If your business is set up as a corporation, you must adhere to the reasonable compensation rules.
  9. There are a gazillion ways to improve cash flow through better inventory management. Take inventory frequently so that it is accurately represented on your books.
  10. If you have inventory that hasn’t sold in over a year or whatever period is right for your business, consider holding a sale, discontinuing these items, or scrapping them to free up room for more profitable items.
  11. Does your inventory get stale or yield scrap parts? Consider selling it or donating it for a write-off that helps your bottom line.
  12. Do you frequently sell items that are out of stock? Consider higher re-order points so that you improve customer service and don’t lose the sale.
  13. Do you have too much inventory? Excess inventory that doesn’t turn quickly enough can results in higher interest expense, lower cash flow, increased facility expense, and decreased opportunity. Sell it down and lower your re-order points accordingly.
  14. Create an inventory forecast and automate your re-order points for the best management approach.
  15. Do you have a lot of returns? Track them to see if they are coming from a particular vendor or item so you can troubleshoot the deeper problem.
  16. Make sure you have a good process for returns so that your customer service is performed well, the item can be re-sold quickly, and any vendor credit can be processed swiftly.
  17. Are you missing out on sales because your space is not big enough? Consider increasing your warehouse.
  18. Manage your shipping costs by making sure you are covering them either in your shipping fees or your product prices.
  19. Shop frequently for the best deals in shipping costs if you have high enough volume.
  20. Evaluate your customers by geographic location and set up your warehouses to minimize distribution and shipping costs.
  21. Do you have a lot of unused stuff all over the office? Get on Craigslist or Letgo.com and have a “garage sale” or donate the items to charity. It may not increase your cash flow much, but it will lift your energy.
  22. Do you work out of an office and pay a high rent? If you offer services that can be delivered virtually, consider working from home to save rent and utilities.
  23. If you need to meet clients face to face, consider renting a shared office space where you have access to a nice meeting area. These virtual shared office spaces are popping up all over the country.
  24. If you have to rent an office, cut down on utilities by turning the lights out when you leave a room or close for the day.
  25. Watch out for recurring expenses that you might not be using any longer. Magazine subscriptions, networking memberships, club dues, gift clubs, and even software apps can add up. Cancel them if you are not using them.
  26. Insurance costs can sneak up on you as an annual bill. Make sure you are covered but not over-insured, and shop around for the best deal.
  27. Frequently re-negotiate contracts for cell phones, voip lines, 800 numbers, internet access and other vendors that give better deals to new customers than they do long-time customers. You’ll save a bundle!
  28. Create extra approval steps for expensive items such as travel, capital expenditures, new hires, and new loans. These can be very expensive and can disrupt profit and cash flow.
  29. Create a travel policy if you have employees that travel for business. They need to limit their expenses to what’s reasonable and necessary for the trip.
  30. Plan ahead on travel expenses so flight costs are not so high. Make deals with hotels if you are a frequent guest.
  31. Determine the right metrics to track for your business so you can stay on top of your business’s expense performance and make smart spending decisions.

Profitability

Your profitability has a huge impact on cash. Here are some tips to consider in that area.

  1. If your products and services are not priced to cover costs and overhead and profit, then all bets are off for proper cash management. It will just be a matter of time before you go out of business. Make sure your prices and sales volume can cover your expenses by doing frequent price reviews.
  2. Do you know your break-even point? That’s how many products and services you need to sell to cover your direct costs and your overhead. Be sure your sales volume is high enough for you to break even and earn a profit for all your troubles. 
  3. It’s easy to get mixed up and think your cash balance in the bank is the same as your profit. It’s not! Your cash simply reflects one account in your balance sheet and is a small but important part of your business. Profit is the key number to manage to in order to make sure your business is viable and has a future.
  4. It’s fun to grow your business quickly, but it can be very difficult to manage cash flow if your business is growing at an out-of-control pace. Get help from a professional who has been there before if your business is on the fast track.
  5. If you’ve gotten venture capital funding for your business, it needs to be carefully managed. No team trips to Hawaii should be approved until you have a solid budget and are consistently making your sales goals.
  6. Determine the right metrics to track for your business so you can stay on top of your business’s profitability performance and make smart business decisions.
  7. If you are pricing by estimating job costs and labor, perform a periodic review of job profitability when the job’s expenses come in. Make changes in the way you estimate the jobs if your profit falls short.
  8. If you price by packages, make sure your profit level averages your goal across clients. If not, adjust your package prices.
  9. If you have labor overruns in your jobs or manufacturing process, create a process to assess the reason for these overruns. Make the necessary changes that you need in your business to reach the profit goals you’ve set.
  10. Run profitability reports by project, job, or product to learn more about how you can best manage your profitability. You should know which items, services or jobs are most profitable, and this can feed into your marketing for more proactive results.
  11. Above all, have fun running your business and reward yourself when you do reach your profit and cash goals.

We hope these tips help you manage your cash better in your business. If you have questions about any of these or need further guidance, please reach out.

Our goal is to help you succeed in your business, and we’d love to find out more about you, your business, and your accounting needs.

Give us a call, email us, or schedule a time on our calendar so we can talk.

Download the PDF version of “105 Ways to Speed Up Cash Flow in Your Small Business” here.