5 Tips for Monitoring Cash

The number one reason why small businesses fail is that they run out of cash. Business owners are often so caught up in the day-to-day that they don’t realize they have cash flow issues until it’s too late.

Here are some simple tips that will help you optimize your cash balances.

Tip #1: Balance your bank statement monthly, at minimum.

If your bank statement balances, then you know that all of your transactions have been recorded and you’re making decisions with the correct information. QuickBooks makes it easy to keep up with this task on an ongoing basis so you know your cash position at any time. Connect your bank account and let QuickBooks automatically download all of your transactions (see here for how-to). The banking section in QuickBooks will show your up-to-date bank balance and your QuickBooks balance. If there is a big difference, balance it as of the current date using the bank balance in the bank feed to make sure everything has been recorded.

Tip #2: Don’t get caught off guard.

Do a simple cash requirements analysis regularly to make sure you have enough runway. Start by predicting cash inflows. You can run an accounts receivable aging summary report to predict how much cash you will have coming in for the next 2 weeks. For cash customers, project your sales for the next 2 weeks. Next, project the bills you need to pay. Run an income statement to ensure you’re including all of your expenses. Be sure to include your next payroll and don’t forget about those auto-debits from your bank account. These are your cash outflows. If you come up short, you will have time to come up with an alternative plan to either hold off paying bills that aren’t urgent or seek additional funding. If you have a surplus, make a plan to invest the cash or return it to your investors.

Tip #3: Keep an eye on collections.

You had a great sales month; now it’s time to collect. You can’t pay your bills with accounts receivable. Monitoring collections is a key part of cash flow management. Review your accounts receivable aging summary regularly. This report will show you how many of your clients are past due and which customers are slow to pay. Send a friendly reminder and keep on top of them. Better yet, do a credit check on customers before allowing them to pay on credit. After all, allowing your customers to pay you later is giving them an interest-free loan. Make sure you’ll get it back.

Tip #4: Manage your inventory.

Inventory management is a balancing act. You need to have enough inventory to meet customer demand but having too much inventory will tie up cash, increase storage costs, and run the risk of obsolescence or spoilage. Inventory management software can help you manage this. A good system that integrates with your accounting software will:

• Connect directly to your point of sale system so your stock levels are automatically adjusted every time you make a sale
• Identify slow-moving items 
• Analyze sales patterns to help predict demand 

Tip #5: Get a line of credit.

A line of credit can help manage the ups and downs of business cycles and unpredictable cash flow issues. This can be an inexpensive alternative because interest is only paid if you have an outstanding balance. Check with your local bank or the Small Business Administration to explore your options. Like a parachute, if you wait until you need it to get one, it’s too late.

ABOUT JUNA FINANCIAL SOLUTIONS

Accurate and timely financial statements form the backbone of smart, data-driven decisions. At Juna, we can help prepare and interpret your financial reports. Contact us at info@junafinancial.com to discover the ways we can assist.