Managing Your Cash
Below is the final article in our $150 competition sponsored by BizSugar.com. It’s submitted by Cathy Iconis, who provides Virtual CFO & Consulting services. Good luck to everyone who contributed an article!
We all know that cash is critical to running a business, no matter the size. But as small businesses, we generally have less cash than the big guys, so we need to know how best to manage it. The first step is to better understand how much cash you have and how you are using it.
First, I want you to know that just because you have profit at the end of the day/month/year, that doesn’t mean you have more cash. The Income Statement (or Profit & Loss) is a tricky thing. It shows you how much revenue you have for the period and the costs related to just those revenues. It might not include cash spent on a large investment, money you received from an investor, or even disbursements you’ve made to yourself as the owner.
The best way to understand how much cash you have and how you are using it is to look at your Cash Flow Statement. It is a simple report giving a ton of information in these four parts:
- Operating Activities: How much cash you have at the end of the period from your daily operations
- Investing Activities: Cash outflows from purchasing a new asset or making loans to vendors or customers
- Financing Activities: Includes cash you have received from banks or owners or cash you’ve taken out of the business
- Cash at End of Period: How much money you have at the end of the day, net of the above
The Cash Flow Statement is fairly easy to get your hands on. Even businesses running on QuickBooks can run a quick Cash Flow Statement from their Reports menu. You can also ask your accountant to supply you with one when they review your books.
Now that you know how much cash you have and where it is going, spend some time thinking about the best uses for your cash. If you are eating up all of your cash from daily operations, then you aren’t able to invest in assets that could potentially help grow your business, like an additional server to give you added capacity so you can have more customers. Here are some ways to manage your cash:
- Budgets: Budgets can save you money and time! In a few hours, you can create a simple budget. Just look at what you spent last year and adjust any items that you don’t expect in the future. Enter your budget in your accounting system. Then run a report to see if you are on track. Easy as pie!
- Dashboards: These are just graphs, charts, or some other visual representation of your financial data. We all know it is far easier to “see” your company when you are looking at a picture. You can visually compare your data: you can see how you are doing versus last month, see what you are spending the most on, or even see which customer is giving you the most money.
All in all, it is important for you to manage your cash. This means understanding how much you have, where you are using it, and how to track it. I challenge you to move past going from hand to mouth and start managing your cash so you can grow your business!
If you have any questions or want to learn more about how you can better manage your cash, visit my website, www.CathyIconis.com.
One thing you should really look into is finding out your net worth as well. This is all the money that you really have to your name. The sad truth is that many people have a negative net worth these days with all the debt people are in currently.
Great post!
Excellent article, Cathy!
Thank You Cathy for a timely, relevant and to the point article.
Very informative article!
Great artilcle regarding cash flow! After all, accounting is simply a process for a “pre-determined purpose” of understanding “where the money came from” and “where the money went”, and practically everything else with regards to GAAP is merely “smoke & mirrors”.
This article touches on the one thing that most small business owners just can’t get – the bottom line does not equal your cash balance! I can’t tell you how many times I’ve had to explain to the glazed-over eyes of small business people the difference between the Balance Sheet and the P&L.
Very nice article. Simple, to the point, and yet SO MANY small business owners just don’t get it. I believe Cindy hit the nail on the head with her comment about having to explain it “…to the glazed-over eyes of small business people…”
Andrew Smith
andrew@taxqueries.com
http://www.taxqueries.com
Well written, clear and very useful for the novice. Thank you Cathy.
Cashflow is the single most frustrating and limiting aspect any small businessperson will ever have to face. Effective managing of your precious resources is critical to ensure long-term longevity of your enterprise. Without a budget, you’re doomed!
Cindy,
I am a CPA, however, I have been out of the accounting field for some time. As we start up a new business endeavor – Business Training Team – it is a great reminder of areas that my partners and I need to pay attention. Thanks for sharing.
Sue White
Managing money is not easy but surely possible with just simple knowledge and a proper approach to the topic. I think that it is not so difficult after all and many people can do it without any special course or skills. But with some more advanced money operations specialists advice could be very reasonable.
I got a lot out of this – very practical and empowering for the small business owner- good work!
I’m glad so many of you liked this article. I too think it is very relevant in today’s economy. Remember, if you have any questions please feel free to email me. You can also check out my website, CathyIconis.com, and even sign up for my emails with more information there!
Thanks!
Cathy Iconis, CPA
Good article about cash management for every business. This information is very helpful small business owners.
Great article Cathy – Cash is so important – one of the biggest drains on cash is inventory. The bottom 30% of businesses have NINE times more inventory than their top 20% performing peers. A simple and free online tool for small business to gauge their performance and opportunity is at phitch.com
Great information Cathy every business owner should know this complex information that you have managed to make look easy.
Congrats on winning the contest Cathy. Managing a business’ cash is extremely important. If not managed properly, you will end up paying a lot of money in interest.
The best way to have cash at the end of the month is to manage your cash.
It is not easy to manage money. I have always problems with that. I just can’t predict how much will I earn and need on one specific month. I hope to change that situation soon but without help this could be hard and I know that.
Guess it is not easy for anyone to wisely predict their budget.. You have to be smart, careful and have a lot of luck!
budgeting is extremely challenging, especially when your business model is dictated by the economy.
Cathy, thank you for the wonderful article. It should be a must read by any small business owner.
mitch´s last blog ..Microsoft SQL Server Hosting for Databases
Nice post with a great information on managing cash. A well prepared budget helps a lot in managing your income and expenses.