ENTREPRENEURSHIP / AUG. 31, 2014
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How to Manage Cash Flows and Keep on Top of Your Finances

Starting day one, staying on top of your business finances is a must. Even though you may be bogged down with equipment purchases, office set up, and client relations at first, putting in a few extra hours to make sure accounts and reporting software is set up properly is essential; one misstep with bookkeeping could send you business into a financial tailspin down the road. Here are some tips to help you get a hold on your finances and set up an accurate statement of cash flows.

Keep Personal and Business Finances Separate

Even though you may not technically be paying yourself during the first few months, you should calculate any money taken from the business for personal expenses as a payroll expense. Debts like your personal rent or mortgage payment should not be factored in as business expenses. Large personal expenses like these may be easy to track, but the devil is in the details. Even small purchases like groceries can throw off your numbers; therefore, make sure even the smallest personal expenses are separated as such.

Call in Reinforcements

You may not think you can afford an accountant at first, but retaining the services of a professional accountant from the get-go is an essential business expense. Your accountant can help you set up your books, make sure your taxes are paid, and help you devise your statement of cash flows. If you wait until there is a problem to hire an accountant it could actually cost you more in the long run. 

Preparation is Key

Keeping the books straight can be difficult, especially during times of profit. Schedule a specific time during your work week to run reports, enter credits and debts, and calculate taxes to be paid. This will not only help you to more accurately forecast cash flow, it will also save you valuable time and money. Waiting until the end of the accounting period to organize your books will hinder your ability to stay on top of your finances.

Keep Track of Your Employees

One of the largest business expenses is payroll. Closely examine your payroll reports each pay period to help you keep track of your employees’ time. The cost of wages, benefits, and overtime can vary from pay period to pay period; do not assume payroll will be the same each week. Just like any other monthly expense, payroll periods will follow a pattern each year. Every accounting period, run a full payroll report of the months past. This will help you determine which times of the year payroll is up or down and help you to prepare financially for higher periods of payout.

Get Paid

Keep a close watch on cash-based accounts receivable reports; this is where you show your true profits. Monitoring your customer payments can help you determine who is delinquent and who pays in full. Running this report can also help you avoid "lost" payments or payments you may have never received. Delinquent customers should receive letters of demand each month; paying customers should receive payment statements for their records. 

Statement of Cash Flow

Run your statements of cash flow as often as necessary to help you monitor your company’s financial health. Your statement of cash flows breaks down your expenses and profits for a preset time period and can help you determine where you are making the most profit and where you may be experiencing excessive loss. 

Keeping a close watch on your cash flow and actively taking control of your day to day finances will help you keep your business afloat even during a rough patch. You will also find that your financial vigilance can help you determine your business’ unique profit cycle; in turn, allowing you to better prepare for times of growth.

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