Operator Accounting Insights

I’m going to wager that it isn’t messy books that keep you up at night. It’s one or more of these:

• Making a bad hire
• Running out of cash
• Growing but getting poorer
• Losing control

The problem is that messy books mask these problems, and I’m a firm believer that it is generally better to know than to not know. Knowing where you stand is the first step to ridding yourself of that sinking feeling.

The bridge from hustle to established business isn’t more hustle – it’s systems.

If you’re like me, you may have started your business as a side project. It was exciting in the beginning, but eventually it became time to take the business to the next level.

If the business is just you and maybe a small team, how do you find the time to be your company’s chief salesperson? The answer is implementing systems.

What do I mean by systems?

• Accounting and financial planning infrastructure (how we know how we’re doing and where we’re going)
• Documented policies and procedures (doing the right things and doing things the right way)
• Taking steps to make the business less dependent on your everyday involvement

Your blood, sweat, and tears got your business off the ground. To make it truly fly – and to be the vehicle for your ambitions – it will take a series of systems.

I’ve spoken recently about cash flow forecasting, which is a vitally important task for small business owners to understand. It can be a challenge even when revenue is relatively predictable, but what do you do when revenue is sporadic and unpredictable?

There are a few tactics you can deploy:
• Use large data sets from the past. If you have a few years worth of data to pull from, that’s your best bet for determining averages.
• Use conservative projections and assume the worst. It’s better to be surprised by having more cash than expected than the opposite.
• Be assertive and regular in collecting receivables. If there’s cash out in the world that belongs to you, getting that into the bank is a great buffer for when revenue is slow.
• Negotiate longer payment terms with vendors, if possible. If you find yourself in a cash surplus, you can always pay vendors earlier than the terms dictate. I would be careful with this, though, because you still want to be seen as a reliable customer who pays on a regular schedule.

On its own, the process of forecasting cash makes you think more deeply about the flow of your company’s operations. Even when revenue is unpredictable, cash flow forecasting is still a valuable exercise.