Cash is King – The Importance of Cash Flow for Small Businesses

Cash is King – The Importance of Cash Flow for Small Businesses

Today the plates of small business owners are full with juggling the ever-growing number of daily tasks and time they need to spend actively reviewing their business operations and financial statements. However, one area that small business owners should never overlook is cash flow. 

In this post, you will learn what cash flow is, the importance of it, and sure-fire ways to help you stay on top of it.


What is cash flow?

To start from the beginning. Cash flow is the movement of money in and out of your business. Unlike revenue, which only accounts for the sale of products or services, cash flow provides an understanding of the net amount you have earned from your profits while taking into account the usage of cash and everyday expenses. To provide an example, you have completed work for a client and have sent them an invoice. While this is a profit, it is not cash, as payment has not been received and funds have not been deposited into the bank yet. 


Your crystal ball

Now cash flow has been deemed with the saying “cash is king” since businesses can’t exist without cash. It has also been said to be one of the most important measures of a business’s health. 

Similar to managing revenue or preparing a balance statement, managing cash flow gives you a good idea of how your business is performing, but better yet, provides an accurate summary of how much cash your business has on hand at any given moment. By understanding how much cash you have on hand, you can be more strategic in your business decisions. 

For example, if your business experiences seasonality, monitoring cash flow can help you determine when to start saving funds in advance for the slower periods or help you discover new revenue opportunities to help compensate for the dip in everyday profits. Another example is you may need to invest in new equipment which you know will be a significant cost. Having a good understanding of where your cash flow stands, can help you determine if you should go ahead with the purchase or hold off until the next business quarter. 

Another great reason, and perhaps the most important, is to manage your cash flow to foresee any potential problems before they arise. It’s common for small business owners to get bogged down in everyday tasks and sometimes fail to carve out time to send customer invoices or follow up on payment. Or they do not have the necessary team members in place and fail to realize that they are operating with debt. By quickly referencing your cash flow, you can make better and more proactive decisions for your business and not fall into these traps. 


Ways to manage your cash flow

Now that we’ve covered the importance of managing your cash flow, here are some ways to do it! 

Prepare a cash flow analysis

The first is preparing a cash flow analysis, which is to monitor all transactions that could impact the cash flow of your business. These include accounts receivable, accounts payable, credit and inventory purchases. A good recommendation is to perform a cash analysis every month, which can be done by combining all unpaid purchases against your total sales or profits at the end of the month. Here’s a calculation that might help: 

Cash Flow = Operating Cashflow – Working Capital – Capital Expenditures – Dividends

If you see that you have more expenses compared to incoming cash by the end of the month, this could be an early indicator of a cash flow issue that needs attention.


Create a stellar cash flow budget

Now, if you have committed to doing a cash flow analysis each month, another way to gain better insight and manage your transactions is to prepare a cash flow budget. A cash budget will help you determine the patterns in which money goes in and out for your business. These patterns can typically include one-off expenses, monthly or quarterly recurring expenses and yearly expenses and revenue. 

Want to create a cash flow budget for your small business? Check out this blog post by the Balance Small Business. 


Don’t go the journey alone 

Being a small business owner is hectic enough. If you’re looking for ways to streamline your work, definitely consider accounting software such as Sage, which can help you automatically generate invoices, pay your bill, and even create cash flow statements. If you’re looking for more hands-on support, don’t hesitate to team up with a bookkeeper and see what they can do for you. 


October is Small Business Month! 

To help celebrate small business month, here are upcoming sessions you don’t want to miss! 

Small Business Week at SBBC
Small Business BC is hosting various sessions through October 17th-23rd to help small business owners improve and grow their businesses. With the support of their industry partners, they are hosting in-person and online sessions across the province. Take a look at their sessions here

Sage Small Business Month Webinar Series
If you’re looking for more information on Sage accounting, make sure to check out their Small Business Month webinar series. These sessions feature industry leaders who focus on trending small business topics and share their advice and best practices to help solve key concerns and challenges for small business owners.

Ways to Leverage Your Bookkeeper Beyond Your Financials

Ways to Leverage Your Bookkeeper Beyond Your Financials

If you’re looking to re-ignite your routine or your day-to-day business operations, take this final quarter as an opportunity to establish new goals and finish the year off strong. To help you make the most of this last stretch of the year, we have put together a series to highlight some goal recommendations specifically for small businesses. In this post, we’ll highlight one goal that may seem straightforward but will help you significantly – leveraging your bookkeeper.

There’s more than meets the eye

Despite misconceptions out there of bookkeepers being a necessary evil or simply being there to crunch numbers, bookkeepers are a source for discussion, advisory functions and financial planning. By changing the way you work and utilizing your bookkeeper properly, you can get much more than just your bookkeeping tasks completed; you also equip yourself with an all-start that truly knows your business, inside and out. 

Let’s get into three ways you can start leveraging your bookkeeper today. 


Review, review and review

The first way to fully leverage your bookkeeper is to take the time to review what they prepare. Now it’s understandable to think “I hired them to do this work so I wouldn’t have to”, and while that is partially true, the reports that they prepare are extremely helpful to understand the health of your business. Is everything where you expect it to be? Have new areas been identified where improvements can be made? By taking the time to review the documents, you can gain a better understanding of the health of your business and be equipped to make more accurate projections and forecasts, seize new opportunities or make adjustments to your existing operations. 

Ask and you shall receive 

On the other side of the coin, I’m sure for every business professional including small business owners there have been instances where reports or documents have lacked clarity. By taking advantage of your bookkeeper’s knowledge and asking questions this can become a rare occurrence!

Think of your bookkeeper as your business’s financial advisor. They work day-in and day-out with your financials, making them an additional expert on your team. Your bookkeeper will be more than capable of explaining any financial concept – so take advantage of this! 

Be open to advice 

Leaning into our last point is asking for advice. While your bookkeeper is an expert in financials, they aren’t limited to only financial advice. Most likely, your bookkeeper has supported numerous businesses in different industries, have implemented software solutions and has taken educational courses to help them with their professional development. If you want feedback or an opinion in an area of your business, they most likely can give you great recommendations based on their personal experiences. 


It takes two to tango 

At the end of the day, the sooner you stop seeing your bookkeeper, as just a bookkeeper and see them as a financial insider and confidant, the sooner you can reap the benefits. With this in mind, it takes two to tango. 

Value them as a key team player

If you’re outsourcing your bookkeeper, or perhaps they are internal but only work limited hours each month, still consider them a key player on your team. Get to know them personally in addition to their work preferences, establish optimal work hours, or set up meetings to keep each other updated or to chat about the business, new ideas and any questions you might have. 

Share your goals

By valualing your bookkeeper as a key member of your team and working to grow the business relationship, you’re more likely to succeed. Another piece of this puzzle, however, is making sure to share your goals. This can include short term goals or long-term goals. By bringing your bookkeeper up to speed, and providing an understanding of what you’re hoping to achieve, they can provide recommendations and assist you in the journey. As the saying by Helen Keller goes, “Alone we can do so little; together we can do so much”. 

Want some additional tips on how to achieve your business goals? 

Check out our previous post on how to create SMART goals that will ensure success.