If I asked you how much cash flow your business generated last month, would you know? How about for last year? If you constantly feel like you are working for nothing, or if you have no idea what your business is really making for you, it’s time to make some changes. Let’s discuss some ways you can start being more proactive and ways you can start improving.
First and foremost, there are some ground rules that every business owner needs to abide by:
1. Your books have to be reconciled monthly on a timely basis. Set a closing date to have the prior month’s activity input and reconciled. The sooner you can have the books closed the better.
2. You have to review your financials at least monthly, once the books are closed. If you wait to review everything when you are having your tax return prepared, you’ve already missed an entire year that you could have fixed any issues! If you don’t have time to devote, hire us as your Virtual CFO!
3. You must have internal controls established. They help mitigate the risk of fraud, and are a core foundation to your business.
Once you can start operating under these guidelines you can implement your plan to start having a better understanding of how your business is performing. Now that you have your current up-to-date books, you can take a look at your current figures and determine your cash flow. If your cash flow is weak, you need to review where the money is going each month. Are you highly leveraged with debt? Are you spending money on unnecessary items? Are you using credit cards that carry high balances? If all of those check out, are you in a good location? Is your marketing strategy working? Are your employees being productive? Are your employees being utilized to their maximum extent? There are lots of areas that can impact your ultimate cash flow, and sometimes you have to look beyond just what the actual financials show.
Once you determine what your areas of focus need to be, you pick 3-5 metrics, or Key Performance Indicators (KPIs), that will help you track your progress towards the goals. KPIs can be ratios such as office supplies as a percentage of revenue, salaries as a percentage of employee production or debt to equity ratio (there are endless possibilities). You then track your actual ratios compared against your target/goal ratio (which is often based on industry ratios). Of course, you have to have a game plan in place of how you will improve these ratios and you have to be accountable for what you should be doing. Sometimes you have to implement something new, sometimes you have to change habits, and sometimes you have to change processes.
If you are curious whether or not your cash flow could improve, please reach out to us at [email protected] We will do a complimentary evaluation for you.