It’s hard to believe that 82 percent of businesses that shut their doors cite a poor understanding of management of cash flow as the primary reason. Even profitable businesses run into cash flow issues.
“The thing that sinks entrepreneurs again and again is conflating profit with cash flow,” Accountiful founder Bill Mosca explains. “Just because a business is profitable doesn’t mean it’s got sufficient cash flow to sustain itself.”
Money coming in is great, but there’s more to it than that. As most business owners will tell you, a lot of money goes out too. Utilities, rent, salaries, suppliers, lawyers, taxes, etc.—the list goes on. It takes a lot to keep a growing business moving in the right direction.
You’ve got to keep the cash moving. Financial forecasting could be the lifeblood of your business, especially if you want happy employees, a content landlord and an audit-free year. Cash flow is an umbrella term that covers a lot of different parts of your business. Ultimately it’s about balancing income with expenditures.
As we discussed in our cash flow ebook, short- and long-term forecasting is the crux of it, but there are many processes you can implement to optimize the parts of your business where cash is moving.
1. Track Unpaid Invoices
When invoices go unpaid, human error is almost always to blame. Sometimes business owners forget to even send invoices (this happens all the time). Often, customers forget to pay them. There is enough room for error that invoicing requires a system to keep track of things. Maybe you have an Excel spreadsheet where you keep tabs on accounts receivable, or maybe you’ve turned to some cloud accounting software.
However you track invoices, it’s important to be able to see what you’re owed (and by whom) at a glance. QuickBooks makes it easy to manage invoices from to end-to-end. You can create, send, track and send reminders to customers, all in one place.
2. Make Payments as Easy as Possible
There are plenty of reasons why invoices go unpaid—and a lack of payment options is one of them.
It’s a good idea to be flexible about taking payments. Accepting checks and PayPal is a good place to start, but accepting credit and debit cards as well as ACH transfers is by far the best option. Including a simple “Pay Now” button along with your invoices ensures that customers have all the options they need.
QuickBooks customers that include a “Pay Now” button with their invoices get paid twice as fast.
3. Customize and Automate Your Reports
There are a handful of accounting reports that business owners should be familiar with. Profit and loss statements along with a balance sheet are two examples of reports that need to be checked and understood frequently. These snapshots provide clarity about the big picture of your business. Knowing your accounts receivable is one thing, understanding how it fits into the rest of your assets and liabilities is another.
Perhaps the greatest advantage of accounting software over Excel spreadsheets is the ability to customize and automate these reports. If you’ve ever tried to create a balance sheet on your own, you know it requires a huge investment of time. It’s a perfect example of something software can do for you, freeing up your time for all the other tasks on your plate.
However you choose to keep your books, make sure to eliminate human error, automate whenever possible and never let a cash pinch hurt your growth.
Source: Article used with permission from Intuit QuickBooks Resource Center. Written by Jimmy Daly. Click here to link to the original article as it first appeared in the QuickBooks Resource Center.