cash control

Entrepreneurs know that one critical aspect to running a business is a good level of cash flow. Listen to hear the first 14 tips to improve your cash flow.

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Show Notes

Entrepreneurs know that one of the most critical aspects to running a healthy business is to maintain a good level of cash flow.  In this the first part of a two part episode, Lisa will give you several tips to improve cash flow in your business.  She also stresses the importance of staying on top of cash flow to run a healthy business for the long-term.

Key Points

*Entrepreneurs rely on a healthy level of cash flow to finance growth and avoid problems in their business.

*You’ll hear ways to manage and maintain the billing and collection function in your business and steps to take to set yourself up to collect on outstanding accounts.

*Lisa shares tips on ways to manage payment methods and payments terms to ensure that you are collecting your cash in a timely manner.

*Lisa and Winnie discuss the positives and negatives of changing your standard payment terms especially with long time customer and what you can do with slow or non-paying customers.

*Hear ways that you can use financing to enhance and supplement cash flow in your business.

*Lisa discusses ways to generate additional cash in your business that can streamline and enhance cash flow.

*Many of the tips shared in this episode on focus the receipt of cash side of the business like sales, receivables and payment methods.

*In Part 2, Lisa will share tips to improve cash flow on the payment side of your business. So subscribe to the show and  look out for Part 2!

Resources and Links

Other episodes referenced in this episode:

Insider Secrets for Success in a Family Business

Cost and Pricing – What You Need to Know

Have questions about cash flow in your business, set up Quick Care Consultation with Lisa to learn how some of these tips could work in your business.  Learn more here

About Lisa Roberts

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way.  She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.

 

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Prescription for Success

Get all the updates and information Lisa shares from Business Rx and the Healthy Business Healthy Profits show! You’ll get information, tips and strategies on growing a healthy successful business. Don’t worry, I won’t bombard you with emails.  At most, you’ll get something from me every few weeks.  Sign up  Here

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

Cash collection is an important part of any business but especially one that is growing. Listen to learn tips on collecting your cash in your business.

To listen to the episode hit the play button.

To download the episode, right click on this link  and choose Save Target As.  Go to the folder where you want to save the recording on your device and click Save or Enter.

Make it easier to get upcoming episodes by subscribing to the show on iTunes . Subscribing to the show will automatically download the episodes on your preferred listening device so you can listen to them when and where you want. And hey, if you like what you hear, please leave the show a great rating and review while you are there on iTunes.

Show Notes

Cash collection is an important part of any business but especially one that is growing.  Many businesses rely on cash to fund their growth.  In this episode, we’ll talk through all the aspects of the cash collection cycle and highlight the mechanisms and processes that help entrepreneurs maintain cash flow.  We’ll also discuss areas where things can breakdown and give tips on the types of processes that can help avoid those problems.

Key Points

*The cash collection cycle can vary among different types of businesses.

*Companies that rely mainly on credit cards can avoid many of the steps in the collection process because they have credit card companies perform those steps for them.

*Accepting payment direct from customers creates additional steps that companies must take to ensure payment.

*We touch briefly on the problems small businesses face from credit card and online payment services in the areas of chargebacks and fees.

*Lisa explains internal process steps on both the collection side as well as the pre-sale approval side.

*For repeat customers, credit standing also needs to be monitored to watch for customers who fall behind in the payments and processes need to be in place to react to those situations.

*Once an order is approved and shipment takes place, processes need to document the shipment and create an invoicing package to support the billing to the customer.

*Process steps in this part of the cash collection cycle are designed to create a valid, approved transaction as well as a documented shipment to help create the invoice package.

*An invoicing package should contain all the elements of the transaction – approved order, customer credit check and documentation of shipment – invoice.

*The next steps in the cash collection cycle is the actual collection of the cash payment on the account as well as the monitoring of the Accounts Receivable Aging Schedule to make sure customers don’t fall behind in their payments.

*The final step of the cash collection cycle is the proper handling of cash and ensuring that it is deposited into the bank and properly accounted for in company books and records.

*Lisa closes the discussion with tips about segregating duties inside your company to minimize the opportunity for misappropriating cash by your employees.

*Entrepreneurs need to keep in mind that this cycle needs processes that create checks and balances to safeguard cash and to also minimize the time to collect cash.

Resources and Links

Entrepreneur Magazine article Lisa mentioned in the episode –  Think You Can’t Win Against Chargebacks? Think Again.  by Joe Keohane

Have questions about cash collection and management in your own business, get in touch with Lisa for  Quick Care Consulting Session using this link

Note: Links in this post may be affiliate links.  Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

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Prescription for Success

Get all the updates and information Lisa shares from Business Rx and the Healthy Business Healthy Profits show! You’ll get information, tips and strategies on growing a healthy successful business. Don’t worry, I won’t bombard you with emails.  At most, you’ll get something from me every few weeks. Sign up  Here

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

Cash flow is the lifeblood for many businesses. Managing cash and forecasting cash needs is important for managing your company’s growth.

To listen to the episode hit the play button.

To download the episode, right click on this link  and choose Save Target As.  Go to the folder where you want to save the recording on your device and click Save or Enter.

Make it easier to get upcoming episodes by subscribing to the show on iTunes . Subscribing to the show will automatically download the episodes on your preferred listening device so you can listen to them when and where you want. And hey, if you like what you hear, please leave the show a great rating and review while you are there on iTunes.

Show Notes

Cash flow is the lifeblood for many businesses. This is especially true for both start-ups and growing companies.  Often a growth company has to spend money before making money.  So, being able to manage cash and cash flow becomes much more important in order to sustain and manage growth.  Today’s we’ll look  at how a cash flow  forecast can help you manage cash and also plan your cash needs as you grow your business.

Key Points

*Cash flow is a challenge for growing businesses because of the lag between company spending and receiving cash from customers.

*Growth takes investing money and due to the ups and downs of growth as well as limited outside investments, managing cash becomes very important.

*There are several signs that a business isn’t managing cash effectively such as cash crunches, inability to make payments, overreliance on debt as well as stress for the entrepreneur.

*Cash flow forecasts help entrepreneurs place a focus on cash both planning and managing it.

*There are tools available in most accounting programs that can help you do a cash flow forecast or they can be set up in an Excel spreadsheet.  See resources below for a cash flow forecast example in Excel.

*Lisa explains how a cash flow forecast works functionally and explains various types of cash inflows and outflows for typical businesses.

*She discusses the different issues to pay particular detail attention to in cash control such as the timing of collection on account and larges purchases like equipment and other large purchases.

*Once the cash flow forecast is prepared. Lisa discusses the types of things that you should be looking out on your forecast so that you can take some action.

*Lisa provides some tips surrounding the billing, payment, inventory and fixed asset cycle that may help improve your cash flow.

Resources and Links

Note: Links in this post may be affiliate links.  Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

Simple Cash Flow Worksheet – to get the worksheet sign up to received my newsletter, Prescription for Success.  You’ll get an email to confirm your subscription and then you will get the page to download the worksheet. Use this link to sign up.

Terms Used in this Episode

Cash Flow – The amount of cash coming in and going out of your business.
Cash Flow Forecast – A tool to estimate the amount of cash at the end of various periods based on estimates of cash expected to flow in and out during the period.
Cash Inflows – Cash that is brought into your business from various sources such as sales, loan proceeds and investments in the company.
Cash Outflows – Cash that is paid out of your business for various purposes such as payments to vendors and employees, repayments of loans and payout of dividends.
Cash reserves – Cash accumulated and held in your business to meet some future need or investment in the business.
Payment Discounts/Pay Early Discounts – A discount offered by a company in order to encourage customers to pay earlier than the normal credit term.
Account collections – The activity of collecting payment of funds on invoices owed to a company by the due date.

Sign Up to Get Updates

Get all the updates and information Lisa shares from Business Rx and the Healthy Business Healthy Profits show! You’ll get information, tips and strategies on growing a healthy successful business. Don’t worry, I won’t bombard you with emails.  At most, you’ll get something from me every few weeks. You can sign up  Here

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

I’m a bit of a business junkie. I love shows like Restaurant Impossible, Bar Rescue and Shark Tank and I even liked watching Tabatha Salon Takeover when that was on TV. One show I’ve have been watching is called The Profit. It’s about a businessperson who goes into businesses, fixes them and invests in them at the same time. One episode is a great reminder that not managing cashflow can get you in real trouble.

 

Managing Receivables for CashFlow

The company featured in the episode seemed very successful by outward appearances. It was a 75-year family business, run by the second generation and making over $50 million in sales. Sounds great, but they are losing about $400,000 per year and have a lot of debt. They face some real problems both operationally and financially. However, the one problem I want to concentrate on here is their uncollected receivables. In this case, there were $4 million in receivables but at least $1 million were extremely old and hard, if not impossible, to collect.

The episode struck me because I saw the same thing several years ago with a tile distribution company that was being run poorly and they too let their receivables get totally out of control. Management didn’t take our advice and unfortunately about a year later went out of business also bringing other businesses down with it.

A Prescription for Managing Receivables

Here are some tips that you can use to avoid having your sales tied up in uncollectible accounts and avoid the same fate as the tile company.

Extending Credit

A business that extends credit to its customers’ should have a credit policy that it follows to minimized credit risk. We don’t often think about it as credit but even accepting a check is a form of credit risk because checks can bounce. Accepting credit cards is one of the least risky ways to accept payment. However, sometimes industry norm requires you to extend credit “on-account”. If that is you, then running credit checks, getting credit references and setting the right amount of credit to extend (credit limits) will help you to minimize the risk you face by extending credit in the first place.

Accounts Receivable Review

Most accounting packages provide an Accounts Receivable (A/R) Aging Report that shows a list of your receivables and the age of the account. Review this report regularly to highlight accounts that have or are about to become past due. The past due accounts need to be followed up and called on to get customers to pay. In the show The Profit, some accounts got so old that the customer had actually gone out of business. The sooner you pursue the money the easier it will be to collect. The old idiom, “the squeaky wheel gets the grease”, is true in collecting receivables so stay on top of outstanding accounts.

Collection Practices

Your business should have policies and practices about handling overdue accounts and methods for securing payment. Getting customers to pay, commit to paying on a certain date and what next steps you will take if the amount remains unpaid, such as using a lawyer or collection agency, should be part of your policies and practices.

Accepting New Orders

Ironically, some companies will sell new products and services to customers who are far behind in their payments. I understand that there are times when you will decide to sell more on-account to a customer with an outstanding balance but there must be good business reasons behind it. By good business reasons, I don’t mean that you decide to take new orders just to pump up your sales because remember sales don’t equal cash. Good business reasons means decisions based on sound business practices. This is where your credit limits, collections policy and collections practices come into play and help guide you in making the best credit decisions.

Don’t Forget that Sales Don’t Always Equal Cash

Be careful not to be one of those businesses that pays so much attention to sales and forgets that a sale means absolutely nothing until the cash is in your bank. Managing receivables is a big part of managing cashflow. Good cashflow means turning receivables into cash quickly, so that you can pay your bills and yourself.

Have you ever had an employee steal from you? Would you know if they were? In this post I want to share some information on ways you can control theft in your small business.

A friend of mine, who works for a small company, investigated the second incident of employee theft in less than 5 years. The last time the total was well over $100,000 and this time looks to be almost as upsetting. Last time my friend was like a bloodhound, getting to the bottom of it and uncovering the full scheme. This time around, she used a healthy dose of skepticism and uncovered the fraud herself; she went from bloodhound to watch dog.Watch Dog, control

If it’s happened to you, you know all too well how hurt, frustrated and angry it makes you feel. If you’re the owner of a small business, it may not make you feel much better but you’re not alone. In fact, a survey by the Association of Certified Fraud Examiners showed that the smallest organizations (defined as less than 100 employees) were the most victimized by fraud at a whopping 31.8% in 2012 and a median of loss of $147,000 [1]. The losses for larger companies were lower.

Larger companies are able control theft more effectively because they have more resources to protect against it. They’re able to use techniques like outside audits, internal audits, risk assessments as well as other prevention and detection activities.

However, if you’re a smaller company, you need to rely more on cost effective measures to guard against employee theft. There are some business practices you can put in place in your business to deter, and hopefully avoid, these types of incidents from happening to you.

Consider These Practices to Control Theft in Your Business

Background checks

This business practice is especially important for prospective employees that handle company funds like cash, checks, inventory and even customer accounts. You may also consider doing background checks on employees that are licensed in their profession to make sure that there are no problems from their past that could jeopardize your company. Background checks can run as low as $25 to as high as several hundred depending on how deep the check. You need to weigh the cost of a background check against the risk your business faces to determine if it is worth it for your business.

Establish code of conduct

A code of conduct establishes the company’s position on the conduct of its employees. It communicates to employees standards like honesty, integrity, professional conduct, fairness etc. Owners and managers of small businesses should also take steps to not only effectively communicate the code of conduct but also practice what you preach by following those standards in order to set the tone from the top.

Keen Monitoring and Observation

Keep a watchful eye of signs that may lend themselves to a risky situation developing. A common example is an employee involved in a theft scheme never takes vacation to ensure the scheme is not uncovered. Also, changes in behavior or actions by an offending employee can be a red flag. In my friend’s company, hindsight analysis revealed that the offending employee’s financial problems seemed to evaporate and even improve over time and yet there was no significant change in the employee’s pay.

Establishing Internal Controls

An internal control is a process or procedure designed to minimize risk. They can take on various forms depending upon the nature of your business. There are too many internal control procedures to lay out in detail here, but you should think about where the risk lies in your own business. For example, cash intensive businesses should look at the business processes for collecting and safeguarding cash as well as check and balances for detecting problems. If you have inventory that can be easily used, sold or concealed, you should review inventory control procedures to ensure that inventory is monitored and safeguarded to prevent theft. According to an often-cited statistic from the National Restaurant Association, they estimate that 75% of inventory loss in restaurants is due to employee theft.

Regularly Reviewing Internal Controls

It’s also important to review internal controls periodically. In cases where there’s a change in business process or even the business environment, controls that were in place may no longer be effective. Also, make sure controls continue to be followed over time. In the case of my friend’s company, an internal control in place stopped being followed by the person who took over the head accounting position. That failure to follow the control procedure allowed the 1st theft to go undiscovered for years.

Establishing anti-theft policies and practices

According to the survey, besides management review, the other top ways smaller companies detected theft was “by accident” and “by a tip” [1]. Sadly, we can’t always rely on chance or accident. However, setting the tone through your code of conduct and good communications allows tips will come more freely in an open and honest work environment. A few examples of other policies and practices that help are required vacations, regular reconciliations of bank accounts, supervisory sign-offs and regular inventory counts.

Now, you’re aware of some of the ways smaller companies can try to control theft or at least deter theft in their business. Take a hard look at your own business. There may be some small changes you can make that in the long run can save you a lot of money and a lot of heartache. For more about Controlling Theft of Cash Receipts check out my earlier post here.

[1] Report to the Nations on Occupational Fraud and Abuse, 2012 Global Fraud Study. © 2012 Association of Certified Fraud Examiners. pp. 26-27 and p.18.

Control of theft in a business is a difficult problem for business owners especially when it comes to cash businesses.  In small businesses, it’s more challenging due to the difficulty of segregating duties among a limited number of employees. control cash theft

How can you, as a business owner, take steps to limit some of this risk in your business and control cash?

In this post, we will concentrate on examples on the cash receipts side of a business and what you can do to prevent theft, in the first place.  The instances described below involve employees or even outsourced positions such as a bookkeeper.

Cash Stolen from the Cash Register

One of the more common forms of theft is stealing cash directly from the business.  In a cash intensive business, such as a restaurant, bar, clothes shop or department store, this may be taking cash from a customer and not ringing up the sale in the register.  If it’s not caught in progress, it may eventually show up as inventory shrinkage down the road and become harder to detect and ultimately prove.

There are steps that the owner can take to prevent or curtail an employee from taking the risk of being caught.  Surprise cash drawer counts, better supervision and control over the inventory can help to either deter or detect these types of scenarios.  Surprise register counts and supervision remind employees that ownership is checking and monitoring the cash receipts of the business.  Control over inventory, using perpetual inventory systems, inventory counts and monitoring inventory shrinkage rates can help identify problems before they get out of hand.

Cash or Checks Received on Customer Accounts

Another main category is skimming cash or check receipts on accounts receivables.  This  usually involves taking cash or checks from customers, pocketing the payment and not recording these payments on the company’s books.

This type of theft can become more complex if the employee takes extra steps to conceal the theft.  In this scenario, an employee could hide the theft by taking the payment and record an adjustment to write-off the balance for that customer. In this way, the customer will not complain of a lack of payment since his account was manually adjusted.

To avoid this type of theft, the same person who opens the mail should not have authority or access to the accounting system to adjust customer account balances. By separating these functions, employee theft can be discovered through reconciling customer accounts or by customers who contest their outstanding balance.

Received on Account, a More Complex Scenario

Sometimes an employee will engage in a scenario referred to as lapping payments.  The employee will take payments from a particular customer, pocket the funds and then use payments from a different customer to cover the payment on the original customer account.

To illustrate, Customer # 1 sends in a payment on account, the employee pockets the money. The employee uses a payment from Customer #2 to conceal the theft by applying it to Customer #1 account. Next, Customer #3 makes a payment and that payment is applied to Customer #2’s account and so on.  An employee could restart this scenario with a new set of customer payments and accounts. Lapping can continue undetected if the same employee is responsible for opening the mail, making the deposit and applying customer payments.  These functions should be separated among employees to discourage this type of theft in the business.

The important message for a business owner is that duties of cash handling should be separated from the recording of transaction into the company’s books.  In addition, it is important to remember that monitoring things like inventory shrinkage, supervision of cash transactions and preforming regular monthly bank reconciliations with help to control theft of cash receipts in your small business.