To Improve Cash Flow Management, You Must Have This

Tax time is usually the time when most small business owners think about their bookkeeping system. All year they have been collecting receipts in a drawer and it isn’t until about a month before the tax accountant calls that they think… “Uh oh, I have to get my books in order so I can get my taxes done!” This is also the time of year when I’m asked to help someone set up a system for the bookkeeping and help them organize their work because they don’t want to “go through this again next year”.

Many times a small business owner will ask me, what accounting software should I use? I can answer easily that my preferred accounting software is Xero Accounting. However, that doesn’t answer the real question at hand. The business owner is struggling with something more than what software will fix. They are struggling with a drawer full of receipts and an idea of how much money that they’re pretty sure they make each month. They might even say “I used to know exactly what I had in the bank at any given time, but lately I’m not sure. Last week I even bounced a check and I’ve never done that before.”

So the problem really is that they have a system it’s just that it’s no longer serving them well. They have out grown the way they were doing things. Putting receipts in the draw and keeping a tally in their head. This is a system for sure, it’s just that now the business is starting to pick up and it’s just not as easy to keep track of all the details anymore. Things are beginning to fall through the cracks. Cash flow is starting to become a little cloudy.

Money Flows Into an Organized Space

When we first start out it is easy to keep up with everything, because we aren’t yet busy enough with paying clients and we haven’t been spending very much, so there just isn’t a whole lot to keep track of. It’s easy to stay up to date on our bookkeeping and keep a running tally in our heads. But then, we start to get busy and we start to run out of time and we start to let the things that don’t immediately bring in money fall behind. “I’ll get to that later” we tell ourselves. Later never comes though, because there really is only “now” to our brains. We need to schedule in the time to take care of everything.

How a bookkeeping system can improve cash flow management:

So why do I need a solid accounting system you ask? What does this have to do with me and my cash flow? If you ask an accounting person you will likely hear an answer similar to, “Because you do! How can you run your business without it?” As a small business owner you will react with – “Well I’ve been running my business this way for years and I haven’t needed an accounting system. What you want me to do is way too complicated and way too much work for me to do!” Frankly, you would be right. The accounting system that you use, needs to be no more complicated than the stage of the life cycle your business is in. I think we can all agree that we need to have some form of an accounting system because we have to file our taxes each year. Truthfully, to me, that is actually the last priority to setting up a bookkeeping system to help me RUN my business. For example, can you keep a box of receipts for your expenses and track your income from your PayPal and bank statements for tax purposes? Absolutely. But will that box of receipts answer questions you have about your business?

Questions that a solid bookkeeping system can answer:

  • How much did I spend in Facebook advertising last quarter?
  • What were my networking events expenses this year as compared to last year?
  • How much cash do I need to collect each month to keep the doors open?
  • Where am I making money or losing money in my business?
  • Did I give my tax accountant all the expenses that qualify for deductions?

It may not seem like it, but each of the questions above are all related to cash flow. Improving your cash flow is the best way you can improve the strength of your business for the long term. Let’s face it, as business owners cash flow is really the only thing that matters. It is the life blood of your business. First place to go to improve your cash flow? Your systems. Systems can help you find mistakes, systems can help protect your business. Systems can help you to make informed choices for your business. A good system is like a good habit. Good habits will get you good results and bad habits or bad systems will bring bad results.

A solid bookkeeping system can help your small business by tracking your spending and your income in real time. (Or at least weekly) Setting up a system that tracks your money can improve your cash flow simply by having clarity on HOW you are spending your money. Having a solid bookkeeping and accounting system will answer questions like “Am I making any money… really?”

The secret to success for your bookkeeping system to unlock the secrets to your cash flow? Consistency. Discipline. All the time.

When you are starting out, you may not have the budget to hire someone to do it for you right away, but you still need a system and you need to work that system with consistency. Create a habit out of doing your bookkeeping. Schedule it into your work day each week. Set aside time during your normal business hours to take care of your bookkeeping. My suggestion is not to leave it until the end of the work day because it’s very easy to let it slide to “later” when you do. I also suggest scheduling it into your normal business hours because this will help you to understand easily when it’s time to hire someone to help you by taking over the bookkeeping tasks for you. A good measure for hiring help is when you are doing tasks that keep you from bringing in money to your business. You’re no longer spending most of your time on revenue generating activities. By scheduling your bookkeeping during your normal business hours you will gain the benefit that systems bring to your business.

The ability to know what your cash flow is at any given time and be able to make course corrections as you go can make or break your business.

How would a solid bookkeeping system improve your cash flow? What are some of the questions that come up for you that keep you up at night?

Ask your question in the comments below and I will share with you my thoughts on how to answer them.

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