Cashflow Trick - Part 2
It is very common in start-up phase to feel like you never have enough cash. In my experience, many business owners and solopreneurs emotionally feel that they have to pay their vendors first before they pay themselves. By virtue of supporting other business owners and knowing that their vendors may like themselves be struggling with cash flow it's not uncommon to see business owners try to pay bills as soon as they come in. Not only are you creating havoc for your own scheduling and cash flow, but you are also potentially enabling poor financial management habits for your vendor who is also probably trying to start-up and operate a smooth business.
The issue is routine - or lack thereof. Stopping and dropping everything to pay a bill b/c you have received it is silly especially when studies (footnote 1) show that it takes on average 23 minutes and 15 seconds to get back to productivity after being interrupted. Also, as a small business owner you probably don't have the cash flow to hire someone full-time to be your accounts payable manager and chances are you are paying bills when you remember and you're using the receipt of the invoice as a reminder!
Instead of paying bills when they come in consider a payment terms policy. Many solopreneurs and small businesses haven't had time to consider payment terms or negotiate them with their customers and vendors. Typically, most people ignore payment terms anyway and pay when they get to it or have cash to pay. Whatever the reason may be, it would be helpful to try and build in some routine for you as the owner and main operator of the business. If it's possible to outsource the accounts payable function and other bookkeeping tasks, I would highly recommend giving us a call to see if our Outsourced Finance Solutions is for you.
However, if the volume of work doesn't warrant an outsourced bookkeeper, follow the steps below to keep sane!
1. Consider setting up pre-authorized payments to automatically pay from either credit cards or operating cash account for fixed and regular payments.
Credit cards are great to collect points that can be used later for gift cards for staff incentives or reduction in expenses for the business overall but depends on the availability of credit to the company or owner
Operating Cash accounts are easy to set-up but requires strong cash-flow forecasting and diligent treasury management
There is no more worrying about ensuring that vendors get paid on time so long as its set-up properly in the beginning. However do not just set and forget. By automating a function, it requires more review & oversight frequently to ensure there are no errors or unauthorized payments made and that the accounts don't get overdrawn.
2. Have a generic email that accounts payable invoices go to so that your personal email doesn't get pinged every time an invoice is sent to you.
Having a separate email set-up also allows you to delegate the AP processing to someone else on the team (in-house or outsourced).
3. Pick a day that you do financial management (including: invoice processing, matching & payment)
Where possible, use software functions - such as setting up 'Recurring Transactions' in Quickbooks Online (QBO)
4. Integrate banks into accounting systems to process automatic payments once it's processed in the accounting system.
Cloud-based systems, such as QBO connect with your bank and credit cards and so long as invoices are entered or set-up to automatically renew monthly, then the matching of payments can be fairly straightforward
5. Reconcile bank accounts and credit cards on a monthly basis
Staying on top of balances gives you the ability to spot any unusual activity or issues to action in a more timely manner.
6. Create a cash-flow budget or forecast
Frequent review makes you aware of all the cash INflows and cash OUTflows.
Remember, to grow you will need to create a stable system and framework that allows you to scale without having to reinvent your processes. If you think you are at a point where cashflow is spinning out of control, connect with us below and set-up some time to chat with myself.
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Footnote 1: As per 2008 FastCompany Magazine interview with Gloria Mark, Professor at University of California, Irvine