Cash is king, hard lessons some small-business owners and managers forget!

A statement a friend of mine used to bury in my head regularly as she supported my idea of starting this business, now I know why!

Ok small-business owner, here is a piece of information that you may already know but most can lose sight of pretty quickly.  I've recently experienced a small issue with cash flow myself, due to a couple of factors that I will talk about here.  If yours is a similar situation to mine, and your company is growing at a rate more rapidly than you projected, you can find yourself easily looking past some of the more integral parts of the organization.  I have found myself spending much more time on direction and growth of the company, "What should come next" if we are to continue to grow in the way that I would like.  I had hired a family member, my wife, who was previously inexperienced in the use of QuickBooks, our accounting software of choice, but had done an admirable job in a very short period of time increasing her skills in order to help us and keep our costs down.

The positive?  Again we were able to keep our costs down, however I had put the blinders on and left my wife without enough support or time to complete a job that had become almost overwhelming.  She had done the best she could, but did have another job that she much preferred.  Ok, enough of the apologies to my wife.  The essence of the story is this, while I was focusing on the company's growth, I was not spending enough time focusing on the company's assets, namely its accounts receivable and the effect that the negative cash flow was beginning to have in our business.  You see, until recently we were still bringing in enough cash to support ourselves, so I did not see a significant problem. The work is there, but payment is getting slower.

I have since brought my certified public accountant into the mix, who told me that while things were not great, "at least you found this issue in a few months instead of 12 to 18",  which is more common than you would think.

All I can say here is our receivables are significant, enough so that I felt the need to use our revolving credit line to be sure that our cash needs were met for this month.  So this got me thinking, if in just a few months I found that I could be significantly hurt by my shortsightedness in dealing with our financial issues, many of you out there with smaller or larger businesses who are not paying attention to the cash flow may be falling to a significant shock of which you are unaware!

So you see, I am not afraid to share my faults in the hopes that I can keep you from making some of the similar mistakes, or at least so that I can see how some of you can show us how to handle this better.

While I'm still in the process of this issue as we speak today, I am going to share with you my action plan to repair the issue.  This action plan was not developed strictly by myself, but also with the help of my certified public accountant.  If you do not have a certified public accountant I would highly suggest that you hire one, even if their role is just to double check your findings, it is a significant investment in your personal sanity.

These steps are are what I'm currently doing to alleviate the issue:

I have placed an ad in our local newspaper looking for a person who is experienced in the use of QuickBooks, and just as importantly noted that I am looking for a person who has both management and human resource skills. I have done this because this has caused me to recognize that it is time for me to address more than just the issue of finance but of the organization in my company as a whole.  I feel that I am a strong manager, and a strong owner.  But with a staff that has grown from just a couple to 14 people in a business that is service oriented, scheduling and time management is extremely important.  It has become time to recognize that I'm no longer able to manage the entire organization on my own.  My job has to be about the company's future and current financial health, but not its day-to-day tasks.  A business owner who puts themselves in this position could easily decide to clean up the mistake and continue forward with no changes and I feel that would be a grievous error.  Things became unruly because of my inability to handle everything, the power is in recognition of this fact and being humble to the issue at hand.

Secondly I have hired my accountant and his firm to review the current state of our QuickBooks in whole, not simply the accounts receivable, but to make sure that we are in solid positioning and in a state where we can move forward when the plan is in place.  I feel very comfortable that my CPA has my interests at heart.  We are currently in the process of reviewing all outstanding invoicing so that we can put into place the collections process that will be used for all current and future Accounts Receivable.

Thirdly I have contacted my lawyer and explained the situation to him.  He was very helpful in explaining to me my rights in regard to collections, and also how I can protect myself with language on our work orders going forward.  I have also discussed with them the challenges of adding interest to our invoicing method.  This is something I've chosen not to enforce in the past, but now that I have seen so many outstanding bills I feel the need to create a sense of urgency for payments.  This is not to indicate that I feel our customer base in any way is intentionally avoiding payment, you see we have not done our job by creating good follow-up for invoices.

Be absolutely certain to send follow-up statements after the net terms are past!  As small business owners ourselves, we understand how busy we really are and that sometimes the things don't get handled in a timely manner, and it is not because we are avoiding them on purpose.  Therefore we occasionally need that reminder, a statement, that other people do indeed need the money to make sure that their employees needs are met as well.

Now lets create the action plan around the information you have gathered.  I will hire an office manager whose job title will include handling our payables and receivables as well as organizing our office processes.  I've communicated both with my CPA and my lawyer on what methods I can use to be sure that these faults do not continue, and to verify my rights to correct the current issue.  Next I will use the office managers experience, along with my own, to document this action so that we are certain going forward of what our collectibles and cash on hand really are.

I am somewhat fortunate, as I've always kept a separate spreadsheet that has detailed the checks that I have signed against the current available bank cash as shown online in our account.  This means that I was able to react this month because I saw that our cash was going to be significantly short from my expectations as the month neared its end.  QuickBooks should be doing this for me, and with the new items I have in place I have every confidence that it will.  However I can't emphasize enough that the process of a small business owner burying his head in the sand when it comes to issues of finance, will only create significant heartache.

If you're reading this and do not know or have chosen not to know where your actual accounting standing is, I implore you to remedy that.  Be the good manager that you are, after all many of us are learning this as we go...