Highly disciplined people tend to have a past experience that made them that way. Discipline is not an inherited trait; it’s learned. People in recovery never want to go back to their rock bottom. People who fanatically work out tend to have a history of unhealthy habits. And most great business professionals come from hardship. These business owners and entrepreneurs have seen their ventures close (or come close to it), which motivates them to respect every penny.
Early on, after having our best sales weeks ever, I felt empty and dumb when my debit was card declined at a gas station. That failure (and the ultimate resolve to never let it happen again) stemmed from a misunderstanding of cash flow. After all, amazing revenue results are meaningless without standards and protocols to handle the waves of expenses. Cash flow is what determines your success or failure.
Here are nine tips to independently control cash flow while operationalizing like a larger organization:
Pay on time
First and foremost, pay your bills. Don’t just eventually pay them; pay them like a professional that’s dependable and not a delinquent payee that continually needs chasing down. Don’t keep your money in the bank till the last possible second under the guise of building interest. That’s ill-fated logic. Don’t just pay on time; pay ahead of time. For your big vendor payments, pay those on a seven-day net. Do this even if you have the option of 90 days. If you are way later today than a seven-day net, slowly move it ahead week by week until you get to a seven-day net. This way, you’re valued as a highly capable customer and establish a good reputation. If you ever get into a jam, your vendor will have your back because you’ve had theirs. If you’re the “check is in the mail” style customer, your vendor will not go to bat for you when the chips are down.
Invest in a bookkeeper and part-time Chief Financial Officer
To pay on time, you need a capable bookkeeper. That potentially could be you or someone close to you. This person must know how to properly code on your general ledger, otherwise known as GL codes. You want to make sure vendors, payments and codes are efficiently set up with a system that clearly indicates which funds went to what vendor and why. A good bookkeeper also needs to be skilled in your management program of choice. Most businesses run on QuickBooks. There are several other options available, but it’s the most widely used and agreed-upon software.
You can even utilize a CPA to act as a Chief Financial Officer (CFO) for hire. When you’re small and don’t have budget to hire an executive leadership team, you can rent that talent hourly to lay the proper groundwork. Let them guide you and your bookkeeper for how you should set things up rather than try and invent it yourself. This person must be versed in small businesses. Check with your banks and ask who they regard as a great CPA; that will tell you more than a Google search.
A great bookkeeper is trustworthy, dependable, a self-starter and thorough. They also aren’t easily sidetracked. This role is more important than your best manager. Your bookkeeper’s success or failure determines whether you thrive or close due to fiscal mismanagement. Have checks and balances on this person, pay by check and sign every payment. Look into the bank account daily, check the payouts, discounts and petty cash.
Improve your business’s ability to forecast
First-year forecasting is entirely blind; it’s like playing a bad game of pin the tail on the donkey. During the years of COVID, forecasting was a nightmare. But in a regular year, your forecasting should be based upon the previous year’s sales, events, trends and promotions. But don’t stop there. Beyond forecasting revenue alone, forecast what you’ll need to spend on payables, and when. If your forecasting doesn’t include equipment replacements, store updates and signage transitions, then you’ll probably end up needing to spend unexpectedly every month of the year. These things will happen, and expecting everything to never age is the quickest way to have a big bill at an inopportune time. This unexpected expense could be utterly debilitating if you haven’t been ahead on payments or created a nest egg.
Build your “nest egg”
There’s a lot of debate on how big your nest egg should be — for instance, three payrolls worth of liquid cash, three months of operating expenses or as many as six months. There’s no firm answer; just put aside as much money as you can so that if everything falls apart, you don’t. You have to be prepared to endure failure because one day it will rain, and you’ll need a fiscal umbrella.
Consider avoiding credit cards
Credit cards are like packing a wound with dirt; sure, it works in a jam, but buying something on credit and hoping things will be better next month is not fiscally responsible. Credit is only a friend to the highly fiscally disciplined few who can use a card with vendors willing to accept credit payments. The ideal goal is to earn points then parlay those points into perks like cashback and travel rewards. Credit cards are like a casino; sure, someone wins in the game, but not many. Credit card companies live off the debtor, not the on-time payer.
Suppose you can use a credit card payment and pay it every week like clockwork and never deviate from that, then and only then should you even remotely consider using credit cards. If you’re in the worst jam imaginable and you rack up a credit card bill, you are dancing with destruction. At the same time, every business owner has experienced these challenges. But if you’re newer or debating it, avoid it at all costs.
Develop a P&L
Have a profit and loss statement (P&L) that you can control and get with your bookkeeper and your CPA on creating one that is useful and easy to understand. Have a second operating cash P&L. An operating P&L understands that a business works in four-week periods as opposed to monthly periods. February has fewer days than March, so you will have fewer Saturdays in a typical February than in March. If you compare February to March, you will have a bad comparison. But if you compare four, seven-day periods to the following four, seven-day periods, you could see what your flow and trends are developing. Operating in a 13-month calendar achieves this significantly better than going off your classic monthly P&L, the kind you would give to an accountant to pay taxes from.
Pay your taxes. All of them. The IRS can make a mistake, but business owners cannot without facing repercussions. Pay your taxes on time and meticulously. Pay ahead of time, ensure every charity’s tax-free code is documented, every purchase is accounted for, and every payment is reported. Your local jurisdiction might look the other way if you pay a vendor in cash off the books, but the IRS won’t.
Confirm inventory and vendor pricing
Whatever you buy from a vendor, verify the cost, understand whether it’s coming or going, rising or falling, and why. Keep tight awareness of pricing and negotiate six-month or year-long deals with a dedicated vendor. A reliable vendor is your business partner, not an adversary waiting to get one over on you. If you feel that way, change your vendor or re-assess how you have approached the relationship. Keep your inventory tight, not so low that everything runs out, but not so heavy that it gets used up faster.
Project payroll effectively
Create solid payroll projections and check them not biweekly or weekly but daily. See if your hours matched up to your expected labor by having a payroll that matches your scheduler. This works best when your POS is connected to your scheduling program. Doing all that will help ensure your projected payroll matches your actual payroll.