I've run my own business for 10 years now, and I can tell you one thing: Cash-flow management has never been my strong suit.
Sure, you can scoff or wonder how I survived this long without this critical financial skill. But there are plenty of business owners out there—emerging and established—for whom cash-flow management isn't second nature.
If you're one of these folks, I'm here to assure you that you're not alone. But it is possible to get better at managing your cash flow and to make the task less of a chore.
For me, it all came down to shifting how I think about the money coming into my business and finding some help from folks who knew more about managing cash flow than I do (or even wanted to).
A Great Cash-Flow Management Trick? Saving
While I've spent the past five years or so as an S-Corp, I spent the first five running a business as an LLC.
Money comes in? Excellent. That meant I had money to spend. I treated my business bank account as a piggy bank. I'm not proud to admit it, but I was exceptional with spending and dismal at saving.
It eventually caught up with me. When I needed cash, it wasn't there. My cash reserves were nonexistent, which meant I was always teetering on this precarious brink between operating at full steam and crying in a corner because it was the slow time of the year (again).
I had to learn to save. I created a business savings account, which was easy to set up at my bank, and 50 percent of everything that came into my business went into the savings account.
I know that might sound extreme—a whopping 50 percent—but once I got over the initial reaction of, "Hey, where'd all my money go?" I discovered a few cool benefits.
First, I never sweated my quarterly tax payments again because the money was there. Now that I'm an S-Corp and run payroll, this isn't such a big deal, but it was heaven sent when I was still an LLC.
Secondly, surprise expenses weren't as surprising. I had cash in savings to cover that new printer and a new website. I could allocate money to pay down the credit cards I'd run up during low cash-flow times before I'd started saving.
Having more cash and less debt was a great way to run a business. Speaking of which, now is a perfect time to talk about where the money goes once it's inside your business.
Hard Lessons: Learning Where Your Money Goes
Here's a hard truth I learned about cash-flow management: Getting money in the door is as important as where it goes once it arrives. I had to figure out where my money was going and what I was spending it on if I was ever going to hope to manage my cash flow better.
I consolidated my invoicing and accounts receivable into a single financial platform that connected to my business banking accounts and credit cards. This gave me a full financial picture of my business. Talk about things I wasn't ready to see! Yet I discovered a powerful side effect of knowing where all my cash was going: learning where I could make cuts.
Over the years, I'd signed up for various subscriptions that I'd forgotten about, which were siphoning over $200 per month from my operating budget. (And that doesn't include the ones I remembered.)
I quickly reviewed my current product plans, and downgraded or upgraded so that my usage would garner the best deal possible. I also canceled subscriptions where appropriate. In a week, I had cut my spending by $200 per month and saved an additional $180 per month by adjusting subscription plans from monthly to annual and downgrading where appropriate.
Learning to save and getting a full picture of my business's financial health helped my cash-flow-challenged business. But the most powerful transformation came from working with professionals who love cash flow as much as I hate worrying about it.
Cash-Flow Management: The Power of Professionals
Bookkeeping and invoicing software is great for consolidating your business finances. But if you're like me—i.e. someone who doesn't care about running regular reports, reconciling accounts and deciphering data—I've found it helps to work with someone who does care about these things.
I hired a firm two years ago that I entrust with the whole of my business and personal finances. This team of two pros sees every aspect of how I save and spend, and helps me make forward-thinking financial decisions despite my lack of cash-flow management savvy.
It's funny how my spending habits changed when I have someone asking, "What was this expense for $165.17 at [business name]?" I have to fess up. Own the expense. Admit to where I'm spending my business's money.
This team also:
- helps me keep those recurring subscription expenses under control;
- offers advice on accessing short-term lines of credit during low-cash-flow times and how to best leverage those costs;
- offers advice on how to keep costs low; and
- helps me identify patterns in my business cash flow so that we can plan to weather storms and keep moving forward.
Wherever you are on the spectrum of your loathing for cash-flow management, I'd say you're not a lost cause. It took me eight out of my 10 years in business to confess to my shortcomings, actively seek resources that worked for me, get a solid financial picture of my business and find professionals I trust to handle what I have no interest in handling.
And after confessing that I don't love cash-flow management, I've discovered a greater sense of financial security, found resources I never knew existed and garnered even greater respect for those who make a living helping others manage their money. Saints among us, they are. In a do-it-yourself world where I wasn't going to be able to do it all myself, they've saved my bacon and have inspired me to be more involved in the ongoing business of my financial business.
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