Expert: Matt Deutsch, CPA / Building a Cash-Rich Business
Matt Deutsch,CPA BERBERICH TRAHAN & CO.
So where do you even start in your pursuit of stabilized cash flow? Often times the best place to start is by finding and then fixing money leaks in your business. Here are some ideas to get the ball rolling.
Track and Monitor Your Results I am sure we all have that “friend” who estimates they spend $200 per month on dining out. But when they start tracking their expenses, they are shocked to find out they actually spent $2,000 per month on dining out.
That is why it is so important that you are tracking all of your cash flow—in and out.
The most basic way to track your cash flow is to save your checks and receipts. Tally them up on paper or enter them into an Excel spreadsheet monthly. While adequate, it is a bit antiquated.
A quicker and more modern alternative is to use an online accounting software package such as QuickBooks Online or Xero. These software tools connect to all of your financial accounts—bank accounts, credit cards, etc.—and automatically pull in your income and expenses from the bank feed. You can then see how much you have been spending on rent, utilities, entertainment, memberships, etc., so you can be more deliberate with your spending.
Create a Mindful Cash Management Plan When most people think of a plan for spending their money, they think “budget.” Many see a budget as a plan for restricting spending, but by spending money in a mindful way, you can increase your cash flow now while building a cash-rich business.
To create a cash management plan, stop thinking of “expenses” as a negative word.
Start Recovering Cash Flow Now The numbers of a business can be intimidating. After all, you probably did not go into business to be an accountant. However, getting a thorough understanding of where the money is flowing in and out and creating a mindful plan on how to use your cash in the future are critical first steps in creating a cash rich business.
3 Types of Expenses
DESTRUCTIVE EXPENSES—In my opinion, the only type of expense worthy of a negative feeling is the destructive expense. Overdraft fees, spending on vices, products or services you don’t use or that don’t add value are all expenses that you most likely want to eliminate.
RAINMAKING EXPENSES—Rainmaking or productive expenses, however, are how you make money. Spending more money on the right employee, the right equipment, the right marketing campaign, or the right mastermind group can pay for itself over and over again. Education and training can be one of the greatest rainmaking expenses, too as long as you use it. Otherwise, it is destructive rather than productive.
PROTECTIVE EXPENSES—Protective expenses are how you safeguard your business, your productivity and the way you do business. A good example is putting money away into a separate account until you have saved at least three months of operating reserves. Include various types of insurance and a proactive CPA and business attorney you meet with periodically to discuss your business.