Worried about your small business cash flow?

Where Did My Money Go? Part 1: Protect Your Small Business Cash Flow

Where did my money go AGAIN?

If you are a business owner, you have probably asked yourself this question at some point. Money is coming in, but you don’t know where it is now. It is far too easy for entrepreneurs to lose sight of their financial details and end up overwhelmed. But with a solid plan, you can optimize your small business cash flow to keep more money in your pocket.

The Fisher Bookkeeping team cares about your bottom line, and we are here to help you protect it. With offices in Portland, OR, and near Lexington, KY, we can serve clients nationwide. Schedule your free consultation to see if we are the right fit for your company’s needs.

Small Business Cash Flow vs. Profit

The first topic to cover when you’re unsure where your money goes is the difference between cash flow and profit. Many business owners get very excited about how much they are earning, but they ignore their critical cash flow numbers.

Yes, profit matters. It matters a lot. However, your cash flow financials are also crucial to your company’s health. Let’s clarify what these two critical numbers mean for your business.

Cash Flow

Understanding your small business cash flow is vital.

Your business has money coming in and out all month long, and this is your cash flow. When more money is coming in than going out, you have a positive cash flow. More money going out than coming in creates a negative cash flow. 

Companies operating off start-up funds may have a negative cash flow for a while, but eventually, the goal is to be in the black. New businesses often need time to build up to a positive cash flow. Having a solid financial plan should help you get there more quickly.

Depending on the size and scope of your business, you may have all of the following:

  • Operating Cash Flow
  • Investing Cash Flow (money from investors or paying off investors)
  • Financing Cash Flow (money from debt or paying off debt)

For many companies, the operating cash flow is the most vital of these to track and understand. This metric refers to the incoming and outgoing cash coming from normal day-to-day operations.

Your profit is the money left over after you subtract all of your operating expenses from your revenue. In the traditional model, you deduct your expenses from your income to determine your profit.

No matter what method you follow, your profit is any money you don't have to spend on business expenses.

Many entrepreneurs, however, rely on the Profit First system. In this plan, the equation looks different: income – profit = expenses

The Profit First method is what we use and coach our clients on here at Fisher Bookkeeping. No matter how you account for your revenue and expenses, though, profit is what’s left once you pay all the bills. 

So, Where Did My Money Go?

This question is so common for small business owners, but it doesn’t have to be. With some planning, strategy, and systems, you can track and protect your company’s finances. Here are the top four problems we see for our clients, along with help to solve them.

1. You Have No Stated Financial Goals

One of the biggest mistakes that entrepreneurs make is to jump into their business with enthusiasm and hope that the money works itself out. It’s not surprising that this happens because the odds are that you’re passionate about the product or service you offer but not so much about the books.

Without a clear financial goal in place, it’s almost a guarantee that you will get to the end of each month, quarter, or year and wonder where all the money went. 

Protecting your small business cash flow requires systems and diligence.

Beware of vague goals such as “make a profit.” This statement is too hazy to be of value to your business. Instead, remember to use the S.M.A.R.T. method of goal-setting. That is, make your financial target:

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time-Bound

For example, let’s say you are a product photographer. A valuable goal could be to book $8000 of work each month this quarter. This target gives you a measurable dollar amount that you want to bring in within a specified time. And having this goal in place lets you build a plan to reach it.

Financial goals are going to look incredibly different for every business and even every industry. Work with your bookkeeper to determine suitable targets for your company.

2. You Don’t Have a Monthly Budget

It’s so exciting to start a business and make those first sales! Even before your first sale, it’s wise to have a budget in place. You need to be crystal clear on what expenses you have each month and when they are due. You can’t properly monitor and optimize your small business cash flow without a budget.

It’s also hard to set a S.M.A.R.T. goal when you don’t know how much revenue you need to cover your expenses. Account for each dollar that comes in and each one that goes out, and adjust your budget each month as needed.

Having a budget in place is the best way to monitor your cash flow and build your profit.

About half of all small businesses do not have a formal budget in place. They often skip this step because they don’t want to spend time on it or because it doesn’t feel necessary.

A professional bookkeeper will be your best friend in this process. They not only help you build a budget, but they also can help you optimize it for your highest profit. 

3. You Forget to Save for Taxes

Owning your own business can have tremendous tax benefits. However, it does not mean that you won’t owe taxes. Far too many entrepreneurs find themselves facing an overwhelming tax bill because they didn’t prepare. Unfortunately, that unexpected hurdle can be enough to take some businesses down.

The good news is that you can avoid this unwelcome shock at tax time. With planning and the help of an expert bookkeeper, you will have enough set aside to meet your tax obligation. We encourage our small business clients to budget 15% of their revenue for taxes.

Forgetting to account for taxes is one of the biggest mistakes small business owners make.

Preparing for tax payments is one of the best things about Profit First. This system automatically accounts for taxes as you allocate a percentage of your income to a designated tax account on a regular basis. Most Profit First adherents do this every two weeks, while some choose to do it once a month.

With or without Profit First, work with your bookkeeper to determine what you should set aside for taxes. Be sure to tuck these dollars into a separate account and don’t touch them until it’s time to pay Uncle Sam. 

And if you end up with extra? That’s great! You’ll have a head start on the next year, or you can use it some other way.

4. You’re Trying to Do It All Alone

It’s natural for entrepreneurs to wear every single hat in their companies at first. Starting with a whole team is a rare occurrence. If you own a small business, you are likely doing all of the following:

  • Marketing
  • Sales
  • Administrative Tasks
  • Production
  • Shipping
  • Bookkeeping

Out of all these roles, bookkeeping is the easiest to outsource, and you should consider it as soon as possible. You will free up tremendous time and energy that you can dedicate to growing a thriving business.

You can enjoy a thriving business when you protect your cash flow.

When you’re wondering where your money has gone or how to protect your small business cash flow, hiring professional help should be the first step.

Want to Chat With a Bookkeeper About Your Small Business Cash Flow?

Fisher Bookkeeping has a team of experts ready to serve you and your company. With decades of experience on our crew, we can help you no matter which stage of business you are in right now. 

Whether you need help setting up your books or want to learn more about Profit First, we have you covered. We make sense out of your dollars and cents so that you can do what you love to do in your business.

Connect with us today to get started.

About the Author Barb Fisher

Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).

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