Cash Is Key for Small Business!

Good Accounting Helps Make Sense of Growth

Starting a business is one thing.  Typically, you're going to be spending more than you're making— at first.  Then you see it grow.  People like what you’ve done, hooray!  You see sales are up and you start thinking growth.  But how? Which way?  How much?  It can all seem so unclear when you’re thinking about expanding while trying to keep up progress at the same time.  There’s one thing that can help make everything clear and it’s not magic— it’s good accounting.

I’ve written about ways to track growth and how good accounting can lead to smarter investments of your company’s money.  This article by Kangelon Dexter overviews those basic points by asking a few questions:

Can You Answer These Questions About Your Business?

When you’re growing your business, it’s a lot like being a race horse with blinders on. You’re focusing on the goal ahead, and not paying a lot of attention to what’s going on around you. It’s great to be hyper-focused in the short term, but eventually you’re going to need to take off your blinders and look around. Are you headed where you need to be? Do you know?

While you can’t predict the future, there are a lot of questions you can answer about your business with the right reporting. With built in reports, and business insights, Sage One can help you answer important questions and tell you exactly where you stand. Can you answer these important questions about your business?

How much are you *really* making?

Reviewing cash flow statements and assuring that you’re making money is important. But cash flow is only a piece of the picture. Profit and Loss statements are based on accruals, and will give you an overall picture of how your business is thriving – or not. Without it, you’re operating in the dark. Reviewing your profit and loss statement on a monthly basis will help you make important decisions about your business finances.

How much money will I be making – most likely?

This might be the closest thing you have to a crystal ball for your business – a cash flow forecast. This report estimates how much you will most likely bring in and how much you will most likely spend in the next set period of time. Using projected income and expenses, a cash flow report will help you predict any upcoming surpluses or shortages and plan accordingly.

Which clients are overdue on their invoices?

As a small business owner, you’re busy. You don’t have time to constantly follow up with clients who have overdue invoices. You need a clear way to see who owes you – and who is the most past due. An accounts receivable aging report breaks down unpaid invoices into 30 day chunks (typically) so you can see who is a month late and who has owed you for an entire season. It’s a simple way to get an at a glance view of who you need to follow up with.

For the full article featured on Sage, by Kangelon Dexter, click here.

Cash Flow Forecasting 101

     As every small-business owner knows, cash flow is so vitally important to the increased success of their company.  It allows the business to operate from day to day, paying vendors and employees to keep your service running smoothly.  It is also the key to growth.  Making investments at certain milestones in the life of your company cannot be done without cash.  There are loads of excuses for not getting handle on your cash flow, from time complaints to the forecast always being ‘inaccurate.’  But it remains, that the time you spend understanding your cash flow could be the most valuable investment of all.

     There is usually some degree of predictability based on industry norms.  Manage your cash flow based on these norms along the lines of your business model and prior operating history.  Making a forecast will help you be a better manager of the risks in growing your business.  This is can be especially tough for small-business owners, as they tend to not have as much cash “elbow room" on any given day.  You need to be able to predict expenses for the next 12 months, spot red flags in advance and have enough to stay afloat in financial storms.

     There is no one single plan, but rather 3 scenarios to outline when creating your cash flow forecast.  There are the (1)Best-case, (2)worst-case and (3)expected scenarios.  Identify the key factors that effect your business and their dynamics.  Sales cycles, competitors and reliability of products and services are a few of these variables.  You want to be proactive about handling any obstacles along the way, rather than constantly doing damage control.  You should be able to come up with a number for how much money your company will need in the next year to continue along your business plan, including when bills are due and when customers are expected to pay.

     Having a forecast will also help you achieve investment goals.  If you have major upcoming expenditures to grow your business, having a forecast will help you determine the best time to expand.  Your three scenarios should reflect three different bottom-line numbers.  You may not reach the exact goals, but creating these guidelines helps you make better decisions by understanding what you can and cannot afford.