Time tracking is an area that most creatives vehemently oppose. “It’s a creative process, we don’t know how much time it will take.” or “It depends on the person and the project. Sometimes it’s quick and sometimes it’s not.” These are valid arguments. These arguments can be applied to other service based businesses as well. I can assure you, I don’t like time tracking either and when I hire bookkeepers, some are faster than others.
Even though the argument is valid, you still have to find a way to price projects appropriately, track work in process, and measure profitability. Like it or not, time is the best measure. That’s not to say there aren’t other ways of estimating. You have to figure out the easiest, best way to reasonably approximate how much effort each project takes.
A relatively simple Microsoft Excel spreadsheet is usually the best tool for predicting cash flow. This spreadsheet will track when you expect your revenue to hit the bank account and when your bills and payroll will leave the bank account. The first column (each column represents a time period, usually a week) in your spreadsheet will begin with your bank account balance, then add incoming cash, subtract outgoing cash, and finally total to what you expect to have left in the bank. That ending bank balance will be the beginning bank balance in the next column (time period)…wash, rinse, repeat.
Sample Cash Flow Forecast
(Invoices are kept on a separate spreadsheet in this sample. Forecast would normally extend numerous weeks)
Most business owners have too much on their plate, so much in fact, they end up throwing cash and profit away. It’s not that they are so profitable and have so much cash they don’t know what to do, it’s that they “save time” by skipping the financial review. Here are 3 common places to quickly reclaim lost cash and profit (it’s like looking between the couch cushions for your business!):
1.Forgotten Subscriptions – Free trials and automated renewals are often forgotten. Almost every business I have ever worked with has some automatic charges happening on their credit or debit card for subscriptions they don’t even use.
Solution: Review all bank and credit card statements. Have your bookkeeper research any charges that are questionable. Also ensure that the subscriptions you want to keep are for the right amount. If you’ve changed the number of users, for example, you might not be on the right rate plan.
Forecast Revenue – Based on your year so far, historical numbers, and marketing plan, what revenue goals are achievable for the rest of the year? If you haven’t been doing well this year and you really need to bring your A game to 4th quarter, what are you going to do differently? In your review process, you should have pondered why your year hasn’t gone according to plan. Use that information to inform your plans for the 4th quarter. If you have been meeting your targets so far this year, review what is working for you and what you need to do to maintain the momentum.
Adjust Spending – With your year to date information and your revenue plan for the 4th quarter, what changes need to be made to your spending plan? Will you need increase labor spending to meet your 4th quarter goals? Do you need to reduce labor costs to get your financial ratios where they need to be? Have you been spending your marketing dollars on things that aren’t working? Do you need to spend more on sales and marketing efforts that are working?
Collect Aggressively – If your business is like most businesses in the b2b service arena, the first quarter is known for clients paying slowly. To keep your company running smoothly in the first quarter, you must collect aggressively in the 4th quarter. Be vigilant about getting deposits on your fourth quarter work and get December invoices out as early as possible. Ensure your accounts receivable team is staying on top of collections and do your best to get everything possible collected before everyone heads out for the holidays.
Keep An Eye On Cash Flow – The first quarter collections slow down means you’ll have to be extra careful with your cash flow. Make sure you’re maintaining an adequate cash reserve to handle your critical bills and payroll during the first couple months of the new year. If your historical trends show first quarter to be normal or strong for cash collections, you may want to pay forward some of your debt in 2010 to get the tax deduction this year (assuming you’re a cash basis payer). Also make sure you adjust your cash flow forecast to coincide with any revenue or spending adjustments.