Cash Flow $ecret$ Of A Small Business Accountant

INTRODUCTION:

Like any enterprise, small business accountants need to monitor cash flow. With salaries and wages being a major cost, collecting monies quickly for work performed is extremely important or marginal cash flow can become negative very quickly.

So what are some of the tips that we use that all businesses should consider?

Figure 1: Collecting cash more quickly will put a smile on your face! Photo courtesy Balamin Baz & Lara Scolari Gallery Balmiain

1. Invoice Timing

Ideally invoicing should be completed and sent as soon as a job is completed. When we are assisting clients with cash flow forecasts, our three way budgets have options about invoice timing depending on how the clients invoice:

• start of the month;
• middle of the month;
• end of the month;
• evenly.

Of course when we sit down with them and show them what happens to their cash flow as we change the various options, the 'evenly' characteristic makes a massive difference to their bank balance. As small business accountants Sydney and Dubbo, we have systems in place to bill jobs daily. In the early days we would bill at the end of the month but we learnt very quickly that this is simply not sustainable.

2. Always Quote Upfront

A small business accountant in days gone by (10 years ago now!) would bill as per hours charged on the time sheets. Partners, managers, seniors, juniors and administration hours would be added up when the job was finished and then charged at the various hourly rates.

Clients would get different bills of different sizes each year and the invoices would be sent out. This is what would usually happen:

• Client gets the bill;
• Is shocked and confused and even angry at why it is bigger than last time;
• Some would ring straight away demanding to speak to the partner and some would sit on it;
• The debtors clerk would ring wondering why the bill wasn't paid by the due date;
• Client queries the bill;
• The partner digs out work in progress report and eventually has a meeting with staff to find out why job took so long;
• Client is rung by the partner to explain;
• Client then takes their time to pay by starting the clock on terms from the date the bill query was answered;
• Nobody is happy.

What a waste of everybody's time! You can imagine what our debtors days would look like - 65 days plus!

Things had to change and they did. We sent letters out to all our clients stating that we wanted to change the ways we billed and to quote every job upfront. Only one client complained (and they are still with us today).

Setting expectations early will almost invariably improve your invoices will be paid earlier and more likely within your terms.

Figure 2: Money in the bank is what drives up your small business valuation as nobody wants a business that struggles for cash.

3. Set Your Terms

When quoting be very clear about your your terms and set them in a way that will help your bank balance. The amount of time I hear "Oh, we can't ask for 7 day terms or money up front because all our competitors offer 30 days" is astounding. If your customers value your product or service they should listen to you. Sit down with them and explain that by changing the terms will help you to serve them better.

Whatever terms you decide upon, make sure you have a debtors follow up system to enforce them.

4. Consider Offering Prepayment Terms

Settlement discounts for early payments is always an option if you price correctly. Giving customers incentive to pay earlier will invariably improve your collectability. You just need to sit down and work out what will work best for you and your bottom line before offering these. Remember that if you employ a debtors clerk, the amount of time saved by not having to chase clients for monies could well cover the discount several times over.

Figure 3: "Ah-ha. That's how you do it!"

5. Adopt Technology

Adopting technology these days will allow many businesses to raise invoices and send them via email virtually on the spot. Cloud accounting systems such as Xero make this possible. If you have a small business accountant Sydney and Dubbo that uses something like Xero, make sure you ask them about the different options available.

CONCLUSION:

Reviewing how you collect money for your products and services is critical when finding ways to get more money into your bank balance.

Follow some of the tips above and model them into your cash flow forecasts with your small business advisors.

You will be extremely glad you did!