Hello SOTGC community,
If you’re a business owner or thinking of starting a business, it’s important to develop good habits early. Keeping track of your finances and cash flow are critical to any business. Finances are the foundation a business is built and stands on. With proper management on a daily basis, your profits will take care of themselves. Whether you maintain your finances yourself or you have an employee who does it for you, it’s important for you to know where your finances stand before problems occur.
Always know your financial status
You should monitor the financial progress of your business on a weekly basis. You should also know exactly how much money you have in the bank, the amount of income coming in, and how much debt going out. At the start of every day, you should review your financial position. Set financial targets for the next month, and develop a business plan for growth. Financial planning is important to your strategy. You need to know how much money you have now in order to know how much you will need to meet your business goals.
There are three financial tasks that should be done every day to protect the earnings you have worked so hard for. If you’re keeping proper records and have a good automated system, it should only take thirty minutes of your day to verify that your finances are in order.
1. Review business checking and credit accounts
Why: Before you can make any major financial decisions for your business, the first thing you need to know is how much liquid capital you’re working with. Because most banking transactions take place overnight you need to review your accounts in the morning so that you’re working with real-time numbers. Also, you will catch errors on day one and have them resolved within the current month.
What you’re looking for: Check the current balance. How much more or less is it than yesterday’s balance? This will tell you right away if there has been normal or abnormal activity in your accounts.
Next, scan over the withdrawals. Make a list of any debits you do not recognize. Note the payee and amount. Look for any fees that have posted to your account. Contact your bank and ask for more detail on unrecognized debits. If necessary, open a dispute of the debit item immediately. Ask that any small fees be waived. Most banks will waive a certain number of fees per month as a courtesy.
- Be sure to check pending items that have cash or credit on hold.
- Measure your current balance against pending withdrawals. Make a deposit or transfer funds to cover any shortages.
2. Review accounts receivable
Why: Your cash flow depends on paid invoices. Every day that a business has more outstanding invoices than payments it’s loosing money. Your goal is to keep invoices from going past 30 days.
What you’re looking for: You should have a list of invoices that are approaching thirty days past due. Have a process in place to contact the debtor via phone or email with a final notice. Make updated notes of last contact and any payment agreements made. Keep tabs on payment agreements to be sure they are kept. Invoices sixty to ninety days past due should be turned over to an in-house or outsourced collection agency.
- Send out reminder notices ten days after original invoice is sent.
- Follow up daily or weekly to make late payment agreement.
- Send out a final notice thirty days after original notice is sent. Chasing invoices thirty days or more past due is a waste of your valuable time, turn them over to collections.
3. Review accounts payable
Why: Your cash flow not only depends on payments coming in, it is determined by what goes out as well. The more money you can keep in your business, the more capital you will have for growth. Reviewing your accounts payable daily keeps you from making late payments and avoiding fees. It’s important for business owners to pay bills on time and stay in good standing with creditors and suppliers.
What you’re looking for: Scan through your accounts payable and note the due dates. Be sure there is no previous balance or fees that need to be addressed. If there are any issues with the bill, contact the payee immediately and clarify the correct amount due. If you’re using online bill pay, be sure to set the payments up to post on or before the due date. A good bill-pay process for businesses is to go through the bills at the end of every week and set them up in banking bill pay. Be sure to note on the bill the date payment was sent and the amount paid.
- Set up online bill pay with your bank and schedule payments ahead.
- If there were issues with a previous invoice, be sure to verify the current amount due before paying.
- Review due dates and move them (if possible) according to times your deposits are highest.
Want more helpful tips for your small business money solutions? Connect with me on Twitter where I share my financial tips @.