Cash Flow…The Life Line of Your Business

Written by MO.com Subject Matter Resource Ruth King

If you don’t have the cash to make payroll it doesn’t matter what your sales are.

Many business owners are more concerned with making the sale rather than collecting the money for that sale. But if you don’t collect on those sales you can’t pay your bills. I know many entrepreneurs who have gotten in trouble over the years because their customers went out of business owing them a lot of money.

So, what can you do to prevent this from happening? The critical thing is to watch your sales, collections, and payables each week. If you are like most entrepreneurs you don’t have a lot of time to deal with these issues. However, you don’t have to deal directly with them…delegate the tasks and oversee the actions.

For example, your bookkeeper should print a weekly cash flow report for you to review each Friday. This report describes how much money you had in the bank at the beginning of the week, how much was added through collections on sales, and how much was subtracted through payment of bills. This gives you a cash balance at the end of the week. The key is the next part of the statement. It tells you how much money you can expect to come in the door the next week and what you expect to pay. If you don’t have enough to cover all of your bills, then someone needs to start making telephone calls to people who owe you money. That person does not have to be you…it might be your bookkeeper. Just remember, unless you direct someone to make those telephone calls and follow up with you, these telephone calls won’t get made.

It is important to do an accounts receivable and accounts payable aging each week to estimate the money coming in and the money going out. This way, on at least a weekly basis you are keeping track of where you are financially. And, it doesn’t need to take up much of your time to do this…or your bookkeeper’s time either. Once the flow of information needed to complete these sheets is set up and running smoothly it should only take ten to fifteen minutes each week to create this critical business management document.

Sales count. But they are worthless if you don’t collect the money those sales generated.

Note: If you would like a sample weekly cash flow report email rking@ontheribbon.com.