I am no stranger to businesses with cash flow problems. The lack of cash to pay the bills is pretty common among small businesses. It’s no secret why it happens… promises haven’t been kept by customers, you expected sales that didn’t materialize, you expected funding that didn’t come in, the list goes on. What I find most often is business owners don’t know what to do when it happens to them. Here’s my advice:
1) Figure out what went wrong and take steps to fix the problem or at least limit the impact. This is easier said than done and you might need some outside advice to help you figure it out. Here are some things every business should do:
- Review your budget vs actual report – is anything out of line? (If you don’t have a budget, you need to get one. Budgets help you keep things under control and see when they aren’t)
- Review your trends – Look at your operating cash flow ratio, debt to equity, etc. What’s the trend? Is this a one month blip or has your problem been brewing for a while? (note, your financials must be accurate or your ratios mean nothing)
- Build a cash flow report. I like to use 2 cash flow reports. The first is a high level cash flow that turns the budget into a cash flow forecast so you can see potential problems with your budget and figure out how to make your plans work well in advance. The 2nd is the one you’ll need immediately. It’s a very tactical report that details out what you’re expecting in receivables over the next 4 to 8 weeks (as far out as you can accurately predict) and the bills you’ll need to pay.
Today, I was pondering some of the interesting scenarios I have run across in my professional career. I thought I would share some, just in case anyone is facing these types of issues.
I’ll start off with an encounter from very early in my career. This story arises in almost every interview I do (either giving or receiving).
Once upon a time, in a land far, far away there was a small business owner who didn’t care much about the IRS or piercing the corporate veil. Within 2 weeks on the job, this business owner asked me to record a $20k expenditure on the business books. The expenditure was for a repairs to a friend’s home (this was not a remodeling business). Although young and naive, I was a college graduate with high moral standards. I just couldn’t bring myself to do it. I know now that many bookkeepers would do whatever the owner asked and simply make a disclaimer that they only record what the owner tells them to. Well, not I! No way! I was an employee and I needed this job, but even way back then, I couldn’t allow myself to sell out my values (and the IRS standards, etc) for anyone. What to do, what to do?
I just logged in to my QuickBooks online account and see that it’s true…QuickBooks Online is now available on the iPhone. See the screenshot below.
Most small business owners know what a bookkeeper is; they take all of your receipts and magically organize them in an accounting system. Most will provide you with financials on a monthly basis, but they are primarily entering the data you give to them.
So, what is a contoller?
In small businesses, the controller is often in charge of finance, accounting, bookkeeping, information management, information technology, human resources, and administration of 401k and benefit plans. If the company has an internal bookkeeper, the controller will oversee their work while performing other accounting functions. The controller usually also acts as a liason with the company’s outside advisors such as the CPA firm, attorney, and bankers.
I recently read the book “Fire Someone Today” and I found it to be a great resource for tactical managment advice. The title will prohibit the book from being displayed in your work library ( unless that’s your style of management…), but it provides good insight nonetheless.
A couple of my favorites from the book:
Don’t Fly Blind – Build a Dashboard: A Profit & Loss statement is not a dashboard. A monthly report is not a dashboard. These financial statements tell you what happened in the past; a dashboard tells you what is happening now. A dashboard can even tell you what is going to happen next.
That’s right, postage stamps are going up a penny in May. It seems like they just went up, but I guess time is flying past me. Rates were raised two cents last May and will apparently continue to be adjusted every May based on the inflation rate for the previous 12 months. Here’s an article about the 2006 legislation that enabled an easier process to make adjustments: http://money.cnn.com/2008/02/11/news/economy/postage_increase.ap/index.htm?postversion=2008021115
Because I have so much free time to make graphs (and I was curious about the historical increases), here’s a graph of the historical postage rates: