Alleviate Cash Flow Concerns with Qount

When you’re running a business, virtually every decision you make in a given day comes down to one thing: cash. 

If you have cash, you’re free to take chances, make improvements and upgrades to systems and tools, develop and offer new products and services, and increase your staff. In other words: you grow. Without cash, it’s just a daily fight for survival.  

Whether it’s a bakery down the street, a law firm, or Google, cash underpins virtually every decision in every business.

The problem is, for many business owners, cash is scarce to begin with, and difficult to manage when they get it. Most entrepreneurs get into their own business because of a particular passion or talent they want to market, with cash being merely a tool.  

At Qount, it’s our passion to help you follow your cash, and our experts and cutting-edge software can help you manage your cash flow to keep your business running. Below are a series of basic tips and best practices entrepreneurs should follow (for the purposes of this blog, we’ll focus on managing cash when you have it – raising cash to begin with is a whole other topic we’ll tackle at a later date): 

1: Know Your Break-even Point: 

This one is business 101: make sure you know the point where revenues equals expenses. A basic financial standard for any business is the break-even analysis -- the amount of money you need to bring into the business to cover your expenses. Most businesses run a cash deficit upon starting up, or when they’re scaling to the next level. Understanding when you reach a break-even point will then allow you to start thinking about what can come next. And even when you pass the break-even point and start turning a profit, you need to know where your floor is if things one day start tipping back to that point.   

Check out the handy break-even calculator from Entrepreneur.com to help analyze your per-unit costs and revenues against your monthly overhead costs to determine your break-even sales. This analysis shows how much revenue you need to cover both fixed and variable costs. For the purpose of the analysis, it's recommended that you use average running costs (including payroll, utilities, rent, etc.) rather than fixed costs to produce a more practical break-even point. 

2: Differentiate Needs from Wants 

This is something everyone deals with in their personal lives from the first time their parents give them an allowance; whether it’s a seven-year-old looking to spend on Pokémon cards, or a 37-year-old wondering if that new car is right for them, separating needs from wants applies to business as well. You have big dreams for your business, but it doesn’t happen all at once. Splurging early on things that aren’t vital to growth is a surefire way to get in trouble. It’s a balancing act you need to master to keep your cash flow strong. 

3: Keep a Cash Reserve 

If you’ve built your business to a point where it’s profitable and growing, it’s still vital to have a cash reserve. As the old adage goes: hope for the best, plan for the worst. Without a cash reserve, if your business hits a rough patch you could teeter on the brink of despair. It’s generally considered wise to have a minimum of three months’ cash reserves on hand should the worst happen, that way you give yourself a grace period to get the company’s finances back on track.

4: Anticipate Future Needs 

Seems simple, right? Problem is – do you have time to do that? Entrepreneurs are like golfers – when you’re trying to get out of the sand trap on the fourth hole, you’re not spending too much time planning for the water hazard at 15.  

Business owners know they need to look ahead, but when customers need to have their orders filled, you have inventory on the agenda, and oh yeah, payroll, it can be difficult to think too far ahead.  

But if you want to thrive, and not just survive, it’s vital to do so. In fact, in much the same way you schedule a meeting or appointment, it’s a good idea to schedule time where you can simply sit and make short and long-term plans. Use the time to take a long look at your financials – profit and loss, accounts payables, monthly income, cash flow statements, etc., and use the information to plan ahead for the next three months, six months or whatever timeframe works best for you. 

Put it on your calendar the way you would a dentist appointment. By forcing yourself to do it now, you’ll save yourself a lot of headaches in the future.  

5: Keep Cash Working For You 

If you have ample cash reserves, that’s a great first step to gaining stability and mitigating any short-term speed bumps you might encounter. But is that cash working for you? Are you maximizing your return on the cash you have? If not, you need to, because you could buy yourself an even greater cushion should you need it.  

Your cash should be in interest-earning accounts at your bank. That can mean certificates of deposit, money market accounts or other investments that can drive growth in your cash capital.  

One expert that Forbes spoke to also gives excellent advice on this front: knowledge is power.  

"Not knowing the numbers is the main reason people run out of money.  Know your main KPIs (key performance indicators), and monitor them to accurately gauge how well you’re doing. As someone in the call-center business, labor cost is our main KPI. When we’re over a certain percentage, we know we’re losing money and dipping into margins. 

Also, manage clients with an escrow up front, shorter payment terms or a deposit to lower your risk. One early mistake I made was extending longer payment terms (60 days) to a company that was scaling their seasonal business. Once their season was over, they didn’t pay, which we had to pursue legally. 

A 13-week cash burn report is also useful for managing cash flow. This tool allows you to monitor cash flow weekly and make deliberate trade-offs based on what needs to be paid off that week and what can be pushed." 

6. Reduce Cash Out 

Yes, it seems fairly obvious when discussing cash flow to just say “spend less money”. Well, yes, but you should spend less money. Determine areas where there might be cheaper ways to get business done. If your work consists of heavy equipment or machinery and it breaks, can it be repaired rather replaced? Can it be bought used instead of new? 

If you’re dealing with outside vendors, maybe you can negotiate trade for their products or services rather than simply outlaying cash. If you provide something useful to them, many businesses accept trade options rather than cash, so that’s an avenue you should definitely explore.  

The bottom line is, when it comes to major expenses, see if there’s a creative way to reduce the amount of money you spend out of pocket. 

7: Budget Your Own Salary 

OK, you’ve figured out your company’s expected monthly revenue, your payroll, your capital expenses and feel pretty confident in your financial outlook. But did you budget for your own salary in there? Yes, it needs to be its own line item, and you need to have an honest outlook on what it needs to be. Is it as much as your company can afford? Is it a raise over the salary you left behind to start this business? Is it less while you get the company off the ground? 

This is where you have to intertwine your personal finances with your business finances. You need to figure out your mortgage, car payments, kids’ college tuitions, insurance, groceries, etc., and make sure you’re paid accordingly.  

And beyond that are bigger-picture questions: what are your talents and skillset worth on the open market? What would you get if you performed similar tasks at a big company instead of under your own umbrella? You wouldn’t think that negotiating your salary is tricky when you’re your own boss, but amazingly it is.  

How can Qount help? 

At Qount, our team knows the unique challenges faced by entrepreneurs – after all, Qount itself is a venture started by entrepreneurs. Where your savvy might be in software or tech, ours is in finance. Our experts and technology are here to guide your company through every aspect of its accounting and finance.  

For all of the elements we discussed above in maximizing cash flow, Qount can help. Our software can handle as much of your company’s accounting as you want -- whether it’s basic bookkeeping or CFO services. You can be as involved as you want, working with the software daily or being hands off and letting it work for you. And every step of the way our experts can help guide you when you need the human touch.