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"Traditional accounting does not track cash very well. Your cash might be found on your balance sheet."
Readers of my article “7 Proven Steps to Manage Your Cash with Ease” asked for more details.
In case you missed that article, or need a reminder, here are the steps.
1. Do Your Bookkeeping for Cash Management
2. Find Cash in Your Business
3. Make Quick Fixes
4. Work on the Big Cash Management Ideas
5. Forecast Your Quickly and Easily Cash
6. Manage Your Cash
7. See Your Results on a Dashboard
This article is an overview on how do set up your bookkeeping for cash management success.
Instead of a checklist or a “how to” article, I will tell you how a client (Rebecca) and I cleaned up the her company books. The company is “The Spa,” a high-end day spa.
(The method is from a real client, but the name and type of company are different to maintain anonymity.)
The End in Mind
Rebecca was stuck at about $3 million in sales. Her biggest concern was running out of cash, even with a big credit line and healthy profits. 2-3 times a month she was almost out...
Getting good advice on how to implement cashflow management practices can be complicated. Improvements to cashflow management are available for all aspects of your business. The tricky part is figuring out what to start with and what practices aren’t worth the time and effort for your business.
The biggest challenge is that some cash management ideas can actually put you in a worse cash position than when you started.
You could start today by implementing some easy things that would give your business quick additional cash. But which easy ideas should you implement? More important, are they right for your business?
I’ve found articles written on each of these ideas. The authors would have you believe that each idea should be implemented by every business:
In my article “Some Bad Advice on Cash Flow Management” I mentioned that sometimes conventional wisdom isn’t very wise. In this article, I am going to bust the myth that you should always pay bills as slowly as possible and hold onto your cash until the last possible moment.
There are at least seven instances when you may want to spend your cash quickly:
Early Payment Discounts
Some companies will give you the option of either paying in 30 days or paying more quickly, with a discount. The most common discount is 2% if you pay within 10 days, but if you don’t, then the full amount is due in 30 days. This is known as “2/10 net 30.”
Why this a good deal if you have the cash to pay early? It’s like earning 36% interest on your money! The vendor is basically saying...
Most people think that cash management, cash flow, and cash forecast are the same - they are not. If you don’t know the difference, you may have a false sense of security about where you are and the progress you are making.
Even if you do know the differences between the three, you also need to know how to use them to run your business.
I’ll give you a rundown of each one, what they are used for, and some key ideas for using them to run your business.
What is a “Cash Forecast” and What is It Good For?
A cash forecast is a way to predict when cash is coming in and going out, based on your business model. I like to call this “business modeling” because it creates a sense of how your business is run. Sometimes it is also called “cash modeling.”
A cash forecast is also a predictive model of your cash-based profit and loss statement.
Cash forecasts are usually set-up for monthly calculations, which go out 1-3 years. They use cash-basis...
In my last article, “Some Bad, and Some Good, Advice on Cash Flow Management,” I told you I’d give you the details for the seven steps to implement a sound cash management program.
I mentioned that people sometimes want to move too quickly. Generally, their problem isn’t what they think it is (see my article “Keep Digging. The Problem with Your Cash Flow Isn't What You Think It Is.”)
I advise everyone to take a systematic approach.
In this article I’ll go into more detail on how to implement a solid cash management program in any company. Here are the seven steps:
Step 1: Put your bookkeeping in order. Create a solid foundation.
Most businesses without a professional controller will have significant errors in...
Business owners with good cash management habits are more likely to have a growing, successful business. They have more control over their business’s cash and more time to grow their business by focusing on their business’s unique value-added products and services.
Here are ten (10) habits you can adopt to help put your business on cash management auto-pilot.
The 10 Cash Management Habits
Habit 1: Maintaining Up to Date Bookkeeping
Up-to-date bookkeeping is critical for knowing where your cash is, where more cash is coming from, and where it needs to go. In other words: bank...
A business owner’s mindset about cash management is the difference between having enough cash and struggling to meet expenses every day.
When I meet a business owner who struggles with cash flow, I ask, “Tell me about your business?” They can say whatever first comes to mind, and they usually tell me the good things, starting with whatever their business is known for and what’s going well.
People talk forever about the wonderful parts of their businesses. Those areas that the business was built around- marketing, products, software, services… anything that helped them grow sales.
The One Thing that...
I love seeing the wide variety of businesses around the world. It’s one of the reasons that I enjoy working with small to medium sized businesses – there is so much variety and so many ways that people have figured out how to make money. They are so innovative, and it seems like it would be so fun to be part of the team!
These companies generally have:
After that the business often has weak spots. They generally lack systems and operations that will allow them to scale, especially when it comes to accounting, finance, and cash management.
Between my experience and the conversations that I’ve had with various accountants, bookkeepers, and business consultants, I’m convinced that 90% or more of small and medium sized businesses don’t have good financial management. This includes basic...