Cash flow is extremely important and sometimes tight for a restaurant. For a service based business the major concern is typically having enough money to cover payroll. When delivering services as your main source of income then the majority of your costs are in payroll expenses. Therefore, you need to figure out a way to keep cash flow healthy and also predict expenses. Here is my guide on how to control cash flow as a small business.
Tighten Up AR Procedures
If you want to increase your cash flow then you need to get a handle on your accounts receivable. I see many businesses with a huge AR aging summary. When we review the old accounts receivable many items are found to be invalid. Typical issues are that the invoice was a mistake, never paid or the payment was applied incorrectly. All errors need to be identified and fixed so that your accounts receivable is cleaned up. Once you have cleaned up your accounts receivable issues then you can use your aging report to actually identify overdue balances and reach out to your customers for collection.
One thing you can do to dramatically reduce your AR and improve cash flow is to establish and clearly communicate your billing procedures to your client. Maybe you invoice on the first of every month and expect payments net 14. Maybe you expect a 50% down payment on any project or service. Whatever your billing procedures are make sure that they are clearly communicated to your clients. Also, make sure you follow up right away on overdue accounts. You should be reviewing your AR aging reports once a week and sending out statements to customers on any overdue balances. One thing to consider is accepting credit cards or requiring payment in advance of any services being rendered. Taking credit cards or payments up front can dramatically improve your cash flow. Those that balk at credit card fees don't take into consideration the labor costs associated with managing AR and tracking down overdue balances.
Use QuickBooks To Control Cash Flow
Once you have your AR under control you need to figure out a way to accurately monitor your true cash balances. Using QuickBooks as a tool to control cash flow has worked well for me and our clients. Here are a few ways we use QuickBooks to monitor cash flow.
Import Payroll - Since payroll is one of the larger expenses of a service based business it is important to get payroll information entered into QuickBooks before it clears the bank. While you can manually record payroll in QuickBooks you can also import payroll data into QuickBooks. You should check with your payroll service provider to see if they offer QuickBooks import capabilities. If you can post your payroll data to QuickBooks several days prior to the actual payroll check date then this will help with assessing cash flow needs.
Download Account Activity - You should regularly download transactions into QuickBooks from the account activity for your various bank accounts and credit cards. This will again help you to get a better grasp on your actual bank balances.
Print Checks - You should definitely be printing checks directly from QuickBooks. If your print checks they will automatically appear in your bank register rather than having to be manually entered. This again helps with understanding actual bank balances as all of your outstanding checks will show in your QuickBooks bank register.
Used Memorized Transactions - You should use QuickBooks memorized transactions to record any payments that take place automatically. Payments like mortgage and utility payments are often set up for automatic ACH payment. By using memorized transactions you can have these payments post to your QuickBooks accounts in advance of the payment actually hitting your bank.
Sort By Cleared Status - Sorting by cleared status in your bank register will show you the last bank balance that the account was reconciled to. It will also show your actual cash balance with all pending deposits and payments that you have entered into QuickBooks. If you have followed the above recommendations you should have a pretty accurate actual cash balance.
Manually Clear And Reconcile Accounts - You can manually clear transactions in QuickBooks by opening the bank register and putting a check mark next to a transaction in the column between the payment and deposit fields. If you have online banking access that offers daily ending balances then you can reconcile your bank account on a daily or weekly basis. When you are trying to manage cash flow this can be a very handy process. One piece of advice would be to reconcile to daily ending balances and always confirm you are in line before moving on.
Cash flow is extremely important to all businesses but especially important to the small business owner. QuickBooks is a great tool to use to control your business cash flow. By automating QuickBooks, downloading transactions and reconciling your bank account often you can really get a good idea of your actual cash flow. It is all about the right processes and keeping your books up.