I was having lunch with a business colleague of mine a few weeks ago when he told me how much changing his bookkeeper had helped him. He had been dealing with incompetent bookkeepers for a while and finally found someone good. He said something that really stuck with me, "just getting a good bookkeeper doubled my cash flow." It made perfect sense to me as I use QuickBooks as a tool to manage cash flow. Cash flow is something that many small businesses struggle with and just by actually handling your bookkeeping the right way cash flow can really be improved.
AR Was Lowered
One of the most common scenarios we come across when we take on new small business bookkeeping clients is an accounts receivable mess. When you run an AR summary aging report and it is really long it means one of two things: you have lots of customers that are bad at paying you or you are not recording your payments correctly. Most of the time we find that bad debt balances were never properly taken off the books or payments were not properly applied to open invoices.
Handling your bookkeeping correctly will help ensure the accuracy of accounts receivable. Additionally it will make you pay attention to your overdue balances and do something about it. You would be surprised how many customers will be willing to pay their outstanding invoices when you just ask. You should also establish and communicate clear billing policies with your customers right from the beginning. By paying attention to accounts receivable and following up on outstanding invoices on a regular basis I am sure that you will make significant improvements to your cash flow.
AP Paid Faster
One great thing about collecting your outstanding accounts receivable faster is that your cash flow will increase and you can pay your vendors faster. Part of managing cash flow is meeting all of your obligations as a small business. Managing cash flow can be an art. You need to make sure you bring enough money in and manage your bills as well. Quite often the small business owner is the last person to get paid each month while they make sure their vendors and employees get paid. Increasing cash flow makes paying the bills much more manageable. While many businesses may not choose to keep vendors happy with their increased cash flow they should. Keeping vendors happy is important so that you can keep delivering goods and services and maintain a reputation as someone that people should want to do business with.
Cash Flow Doubled
Good bookkeeping can literally double your cash flow. It sounds simple but a big part of it is actually caring and paying attention. Many businesses become obsessed over sales, which is not a bad thing. However, a sale doesn't mean anything until the cash has cleared the bank. A common question we hear is, "if my sales are so great how come there is no money in my checking account?" A balance sheet report or AR aging report usually reveals that the money is tied up in accounts receivable. As stated earlier paying attention to your outstanding bills and following up on them will drive your bank balances up.
Bookkeeper Only Did Bookkeeping
One thing my colleague told me over lunch that stood out was one thing he changed was that his bookkeeper only did bookkeeping. He was using an outsourced bookkeeper who came in once a week and updated the books. She didn't answer phones, run errands, fill coffee or set appointments; she only did bookkeeping. We see this problem a lot where businesses ask too much of their bookkeeper. When we are brought in on a bookkeeping consultation we often hear from the business owner that their bookkeeper is not good or not fast enough. Typically they are asking way too much of their bookkeeper. You should hire a high-quality bookkeeper and not necessarily a good all-around employee. If you find a really good bookkeeper for $12 then stick with them. However, most likely you want to have a top notch bookkeeper at $50+ per hour and an administrative assistant at a lower rate. Have your bookkeeper do nothing but bookkeeping and see what it does for your cash flow and your bookkeeping system overall.
Your bookkeeping should be helping improve your cash flow position. If your cash flow is constantly a struggle you either aren't paying enough attention to your bookkeeping or you don't have a good bookkeeper. Cash flow is the life blood of your small business so make sure you keep it healthy.