Track small business cashflow without spreadsheets
The cashflow newsletter
Your chartered accountant considers the question of how to best manage or rather record your cash flows. A particularly pertinent topic in these turbulent times.
Cash flow is critical to business survival. If you have any concerns at all about your cash flow, and not just the recording on, do give me a ring or send me an email. These are unpredictable times. Unless of course, you fail to have an excellent handle on your cash flow…
Using a spreadsheet?
If you track income and expenses on a spreadsheet, you could be losing sight of how your business is performing and wasting a lot of time on data entry. There are low-cost alternatives that allow you to monitor business cashflow simply.
Small business cashflow
Money in, money out. Cashflow is one of the most important measures of your business’s health. But how do you monitor it?
It sounds simple to track sales on the one hand and expenses on the other – then compare the two. But a massive 65 percent of failed businesses say they closed because of financial mismanagement, including issues such as lack of cashflow visibility. In other words, they didn’t know if they were making more than they were spending.
Why are people losing sight of cashflow?
Everyone knows a business needs to stay in the black.
- keep track of all your expense receipts which gets tricky if there are multiple people making purchases)
- record all your sales revenue (making sure to account for discounts you might have given)
- enter everything into your cashflow spreadsheet (including double and triple checks to make sure everything is entered correctly)
It takes a lot of time, patience and energy before you’re even ready to punch the numbers into a spreadsheet.
Data entry slows you down
Your cashflow spreadsheet is probably a monster. Plugging in the numbers takes time, and a lot of it. Unfortunately, it’s not a job you can rush because you need the spreadsheet to be as accurate as possible.
The large amount of time required results in two common issues:
- The task gets pushed back repeatedly so you go for long periods without knowing your cashflow position.
- Because there are gaps in your data, you’re not able to see how the business performs from day to day.
Mistakes creep in
No matter how much you slave over your spreadsheet, there’ll be mistakes. Up to 90 percent of spreadsheets contain data entry errors. You’ll find the big ones because the numbers will look wrong and so you’ll trawl through to find the cause. It’ll be slow, frustrating work but you’ll probably weed them out in the end. The smaller mistakes are more likely to sneak through, where they’ll add up, bit by bit, to undermine your data. It’s not great for your confidence.
Cashflow information is old before you see it
Even if you’re vigilant, there’s a lag between when a sale or expenditure happens and when it’s entered into your cashflow spreadsheet. And you still won’t “see” it until you create charts or graphs from those spreadsheets. In this scenario, you’re taking a series of snapshots of your cashflow, and there can be big blind spots in between.
As business picks up – with more sales and more expenditure happening all the time – those blind spots become more significant.
- More things happen in between each cashflow snapshot.
- Cashflow snapshots get further apart because you’re too busy to update spreadsheets.
Cashflow is about more than red and black
There are many reasons why you need to know your cashflow situation. Obviously, you must understand if you’re making money or losing it. That’s the most basic form of cashflow visibility. But there’s more to it than that.
If you can see your cashflow in detail, you can spot opportunities, or troubleshoot problems before they become too big.
If you’re seeing profit spikes during certain periods, you could:
- bring in more staff to help maximise those opportunities
- think of ways to cross-sell or upsell to those customers
- consider marketing campaigns that will bring those customers back during slow times
If revenue is flat during certain periods, you could:
- run sales promotions
- experiment with different products or services
- reorganise staff schedules to lower your expenses during those times
Cashflow visibility is a strategic advantage. By understanding how revenue and expenses change from day to day, you can tweak your business model to find what works best for your situation.
Step away from the spreadsheet
Spreadsheets are remarkable tools. They’re by far the world’s most common accounting software. And for micro-businesses with relatively limited activity, they’re a good fit. But as you perform more transactions with more customers and suppliers, they get in the way of cashflow visibility, cutting off your view of your business’s health.
To see if spreadsheets are fit for purpose in your business, ask yourself these questions:
- Are they getting hard to maintain?
- How confident are you in the data that’s been entered?
- Do you know what your small business cashflow looks like?
There are cost-effective alternatives. Accounting software will eliminate the data entry and give you a daily view of small business cashflow – on your desktop or phone.
Accounting software automatically calculates your cashflow, showing a summary of money in and money out. It will even tell you what you’re owed and which bills are coming due.
Here’s how it works
Cloud accounting software is generally sold on a flat monthly subscription. You don’t need to download anything, and you can run it easily off your existing laptop, desktop or smartphone. You just sign up online and get started.
- It can link to your business bank account (and point-of-sale system) to track sales and expenses as they happen, with no data entry from you.
- Because the data comes straight from the bank, it’s clean and accurate.
- Smart accounting software will also send out your invoices, so it shows what you’re owed.
- The system pools all the data to create a dashboard of your financial situation, which is automatically updated every day.
Accounting software probably only needs to save you one or two hours a month to pay for itself. In reality, it will do that many times over.
As easy and intuitive as online accounting software has become, you may prefer to have a chartered accountant or bookkeeper set it up and/or run it for you. We can then share the dashboards with you.
Contact us for an initial, free consultation about how to migrate your accounts to a cloud based accounting services.
Small business cashflow is everything
Money in and money out is the ultimate measure of business health and sustainability. You should watch it carefully, even if that means manually updating your cashflow spreadsheet. The effort is well worth it.
If, however, you’d rather spend the time on other parts of your business – or with your family – look at cloud accounting software. It can automate the process for you. That’s why 98% of users of accounting software recommend it to others.
(A good small business accounting service can also help you spend more time with your family).
Contact us today for an initial, free consultation about how to migrate your accounts to a cloud based accounting service. It’s what we do.