This 5 minute read will cover mistakes business owners make when sending out invoices
Finding, getting, and then keeping customers may be the three hardest jobs for any small, medium or large business.
If everyone agrees, I bet we can then say number four is managing cash. “What cash?”, is not an appropriate comeback. At least I hope it’s not.
Since managing cash is high on the list, I have spent the past dozen or so years making this daunting task be as simple as possible through just a few simple hacks. These hacks are from real life examples with my own client base. And yes, they work for micro-sized businesses like yours as well.
Reconcile cash daily or weekly at a minimum. I got the idea for this years ago when working with a $1 million lawn services firm. The bookkeeper was the owner’s wife. She believed reconciling cash was like undergoing a root canal without a local anesthetic.
I was tempted to tell her that marketing majors don’t make great bookkeepers, but since she was the wife of the owner, we developed a game plan instead.
Since she was having to research errors occurring as many as three to four weeks prior to the statement date, this slowed her down. I suggested that she follow-up on errors as close to the date they occurred. And that’s when she agreed that doing daily reconciliations was the way to go.
She loved it. And that’s even coming from a marketing major forced into bookkeeping.
I know you hate doing the monthly reconciliation. But I thought cash was your most valuable asset. If so, true it up daily or weekly. I guarantee you’ll never go back to the old way.
You might even follow LessAccounting’s suggested bookkeeping schedule.
Manage your receivables like a bank does its loan book. I have never taken on a new client that has a strong process for managing their receivables. And I mean never. This means having follow up schedule for unpaid invoices is key to keeping your business healthy.
If you run a cash business, thank your lucky stars you don’t face this issue (exceptions include bounced checks or credit card chargebacks).
But if you do have receivables to manage, here’s what I would like you or your bookkeeper to do. Pick one day a week to go through your aging report and call those that are past due asking when they will put their check in the mail.
I’m not sure why, but I like Tuesday morning. Just pick a day, and stick too it every week.
While some business owners may disagree, I suggest calling everyone that is even one day past due. Remember, customers that are 30 days past due were once a day in arrears.
Follow this practice and you’ll have trained customers that know you mean business when it comes to paying on time. Here are some example emails to help collect on unpaid invoices.
Look for season cashflow trends and plan for them. Your accounting system is one big history book. And you loved history as a kid, right?
I like to know what happened. So does the tax person. But what about tomorrow? I like to know what’s going to happen. And that’s where a simplified weekly cash flow forecasting spreadsheet can be a great management tool for any small business in providing insights about your future cash balance.
I have lost count of how many small businesses have thanked me for showing them how to use these tools. They are thanking me because it’s providing them a greater peace of mind.
Intrigued? My suggested next step is to have your CPA or tax person tailor a version just for you. I have built these tools spanning a rolling four-week time period. Some are eight weeks. Many are 13 weeks. One of my e-commerce clients maintains 52-week cashflow forecast. I think he’s nuts (I didn’t tell him that), but he loves it and it probably helps his business.
Stop and think for a second, imagine what the business looks like if you are implementing at least two if not all three of the hacks above. Think you’ll have a more stable business? Probably so, it’s your move and it’s your business.
Here are more ways to avoid cashflow problems.
Life is really good for the bookkeeping wife. Or should I say ex-bookkeeping wife? Oh no, it’s not what you are thinking. Her husband’s business recently passed $3 million in sales allowing them to hire a ‘real’ bookkeeper (one without a marketing degree). But that’s only part of the story. She’s following a passion and now runs a small photography business, and she loves it. I wonder who does her bookkeeping?
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