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MONEY IN, MONEY OUT – IT’S THAT EASY, RIGHT?
Cash flow management can be one of the trickiest parts of running a business. Even well established businesses get this wrong. Without available cash, how do you make good business decisions? Your choices are limited.
HOW THINGS USED TO BE
Reflect on your (or your parents’) childhood – cash was used everywhere. Do you remember the first time your parents or employer gave you cash? You unfold the bills and count up the coins. Place some in a piggy bank, or put some in the bank to save up. You could feel the weight of the coins in your hand, see the notes line up neatly in your wallet. It was such a tangible experience.
THE NEW FINANCIAL ENVIRONMENT
Now, the financial environment is changing. Some establishments are no longer accepting cash, only cards. And cheques? Well they’re pretty rare. I can’t remember the last time I saw one!
You no longer have monetary systems in your business to deal with the physical nature of cash. Previously you would have ‘handled’ the cash: empty the till, count it up, write the deposit slip, take it to the bank, pay bills via cheque, ‘balance’ your books so the cheques don’t bounce. You were forced to handle, look, count and manage this important asset, whether you wanted to or not.
WE NEED NEW WAYS
Managing cash now requires different skills and strategies…because it’s become intangible. Almost invisible actually. You can not see a pile of bills in your cash register, or have cheques to take to the bank. We now need to reinstate systems in your business to bring back managing your cash.
ELEMENTS OF MANAGING CASH
The old (more tangible) way ensured we had focused on these elements of managing cash:
– clarity and transparency of our overall financial position
– negated any timing issues between receiving cash and paying expenses
– that we put any required money aside for ‘pre-spent’ money (upcoming financial commitments or leases) and knew exactly our discretionary spending
– we had to save because loans and credit were not easy to come by
– financial decision-making was more clear because of the above points
REINTRODUCING THE LOST ART OF CASH MANAGEMENT
I am not saying we need to go back to using only cash in our businesses. Here are some suggestions that may work for you to bring back these important elements in your business.
1. Separate your cash out into three or more accounts. Work out what is best for you, but I would suggest one for Monthly Operating Expenses, one for Longer Term Bills or Savings and a third account for Tax and Retirement account savings. Twice a month, add up your income and move the required amounts to each account.
2. Build into your business a practice of reviewing your business finances monthly. This monthly review will become imperative, especially as you grow. As a business owner, a month can pass by quickly, so set a reminder in your calendar.
3. Track your income and expenses monthly. Here is a template you can use if you’re not already on bookkeeping software. Tracking your financials each month and comparing to the prior month will start to show you patterns and give you intel into the health of your business. And it will tell you more than your bank balance can!
‘Bank balance accounting’, or looking at your business bank account balance occasionally and making financial decisions from there, is a common but ineffective strategy for financial decision-making. Your financial decision-making needs to come from a place of understanding the whole financial picture of the business.
This is just a starting point…clarity and transparency in your cash position is just as important if you are a $40k business or a $4M business. And managing your cash consciously through systems and strategies is one of the most easeful ways to get there.
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