Knowing the status of your short term cash flow means the difference between confidently making payment decisions to keep business moving forward and winging it. The typical winging it scene goes something like this:
Person delegated to make payments: “Can I pay this?”
Business owner: “Sure, go ahead, we should be good.” Business owner frantically checks bank account and makes calculations to see if that was a good call…
Cue immediate stress response and sense of regret. Sound familiar?
Your bank account balance is not the best way to forecast payment decisions, so how can you understand what can and can’t be paid on the spot? The short answer is organization and planning of your inflow, outflow and future large purchases. At Accountfully, our goal is to provide accurate and real time data to help you make real time decisions. We do this by factoring in current cash on hand, upcoming credit card or loan payments, bills to pay, auto drafts of recurring expenses, open accounts receivable and more.
For the do-it-yourself business owner, it will all start with compiling a list of potential and current income, regular payments and future big purchases.
Know What Is Coming In
Accounts receivable or “A/R” is going to play a large role in managing cash flow. This is because A/R is your source of available cash when managed proactively.
In a business where you are invoicing and waiting on payment, this means you need to take control of those incoming payments. Check to see what is aging, then ask to be paid. You can also tighten up your payment due dates on newly sent invoices so that you are not waiting too long for payment. Even better, ask for immediate payment from a card or wire transfer, set up an automatic clearing house (ACH) deposit or simply invoice ahead for services.
Sometimes it’s as simple as depositing checks on hand. For the time challenged, do-it-all owner, it is common to let checks and cash sit, even when it is so important for your operations. Deposit them ASAP. The sooner you get those in your bank, the sooner you have cash. For more detailed ways to manage and understand your accounts receivable, read our article here.
Know What Is Going Out
Now that you have a sense of what is owed and coming in, it is time to list out and account for your typical payments. Number one in importance is typically payroll. You have to be able to cover your people and keep the day-to-day functions running. After payroll is considered, it is important to understand any auto payments and regular drafts being made. Think regular bills - credit card or loan payments, utilities, etc. These can be summed up as accounts payable or “A/P”. A/P needs its own management so that you are keeping vendors happy and staying current on accounts. To dive in and see a more detailed look into how it’s done, read about how to navigate A/P here.
Plan For The Big Payments Now
All is great when you can clearly see what cash can be used to cover the normal items, but what about those big payments that help your business expand? When it comes time to make big purchases for inventory, products and supplies, you need to make sure you have the cash ready when it is time. When you take a look at your A/R, you can create a plan to earmark some of this cash to cover upcoming purchases without getting into unnecessary debt. Giving yourself a few weeks or a month ahead will make it easier to make these plans and allow enough time to get any aging invoices paid.
On the accounts payable side, looking at upcoming payments owed will allow you to manage future payments far enough ahead so that you have time to negotiate due dates to suit your needs. Sometimes this can mean paying regular payments a bit later than usual or making smaller credit card payments. It is best to communicate with vendors as soon as you need this consideration. The sooner you can do this, the better. It is best not to ask for an extension weeks after it was due.
Get It All Organized In One Spot
Now that you have a basic understanding of what you owe each month and what you make each month, you can get started on putting it all in one spot. When you can see pending payments and looming purchases in one place, you can calculate the possibilities. This only works if it is up to date and has a four week buffer, otherwise you are still in the dark and not forecasting.
Making a spreadsheet to view these items can be tricky. Keeping it up to date can be overwhelming.
The Short Term Cash Flow Management Tool
As an Accountfully client, you will have access to a simple to read, proprietary template that shows all of your outflow as well as pending and current inflow on one page. This short term cash flow management tool provides a quick overview of what you have to work with and is customized to your business scenario. You will see items such as bank and credit account balances, payroll, monthly bill payments and more. Since we are always working diligently in the background, it will also be up to date. These items are shown four weeks out - plenty of forecasting time to see what needs to happen to plan for those big purchases. We will also be in communication with vendors and making collections efforts on any overdue invoices.
Plus, you have our expert advice at hand. We have standing days that we work with specific clients. One of those days you will receive a weekly cash flow snapshot - an up to date view of the ins and outs of your cash. We can help analyze the data and make recommendations on how you can accomplish your purchasing and sales goals.
Having a true handle on your short term cash flow means being proactive. It is a combination of organizing inflow and outflow in one spot, and keeping this up to date. That can be a lot for Joe Business Owner. We can get this dialed in for you and help you confidently answer those “can I pay this?” queries.
Imagine the sense of calm and confidence knowing you have real time data at your disposal and a team helping you navigate the chunky purchases without scrambling for a line of credit. It is possible and we are here to help.
Let’s set up a time to talk this out and see how we can help you.