There’s a lot going on in your business. You’re spending and making money, and doing a juggling act in your head to try and keep them balanced. You’re looking to invest in some new equipment, but you’re not sure what that would do to your finances. You’re always a little uncertain. Every time you hit that “submit” button on payroll, you’re nervous—will your bank account be able to handle it? Your understanding of your cash situation is foggy. Here’s the deal: you need to establish a weekly cash flow sync up.
You need to establish a habit of gaining clarity about your cash flow.
Profit and sales are important metrics, but they don’t correlate with increasing your cash flow. Cash is the fuel your business runs on. Cash flow management is complex, and will become more complicated as you grow. It’s important to manage your cash flow, or you could end up stranded without fuel.
A big misconception is that bookkeeping is all you need to understand and manage cash flow. In reality, bookkeeping is just recording numbers. Good cash flow management can provide you with clarity on how much cash you have and whether or not your cash inflows and outflows are aligned for your benefit.
Set up a weekly reoccurring meeting to look at your cash flow. Involve your bookkeeper and any key team members who are heavily involved in your day-to-day business. This meeting’s purpose should be to have an insightful discussion about your cash runway, so you want anyone with insight into your cash obligations to be present. Don’t overcomplicate this meeting. It can be as simple as figuring out what to expect in the next couple of weeks. Ask yourself, “Do I know how much money is coming in next week?” and “Do I know how much I need next week?”
You need to align your priorities with your cash commitments.
Imagine your final deliverable on a project was just accepted, and you’re waiting for a large payout from a customer that is due next week. This client has been inconsistent about when they cut their checks. Now imagine that all you have to do is to get on their radar to ensure you are paid on time, but your account manager doesn’t know that. Without bringing your team into the discussion about cash flow, their priorities and yours will not be in alignment.
Bring your key management team to these weekly cash flow sync ups. Investigate your cash inflow and outflow together so your team can understand the importance of their work. These sync ups will align your team in their understanding of what is a priority, allowing them to coordinate their actions and plans to meet your cash commitments.
Your management team is the engine that makes your business sustainable. They make their decisions based on cash, so they should be a part of the conversation. If your lead account manager knows you’re waiting on a payment, they can call the client and make sure you’re covered for payroll. Without their insight, you will just keep waiting for the payment and scrambling to figure out why you can’t pay your employees.
Conversation leads to action.
This meeting is solely for the purpose of understanding what is happening with your cash, so avoid going on a tangent regarding financial projections and profitability.
This is a conversation about what to expect in the next couple of weeks. What are your assumptions about cash coming in and leaving? When will it arrive or leave, and how much will it be? How solid are you on both of these assumptions? Asking these questions will change the systems and courses of action for your employees. You can aggressively identify the areas of uncertainty and generate plans to clear it up.
These discussions lead to action within your company. The more you talk about cash flow and adjust the actions you take to balance it, the clearer and more realistic your assumptions will be. Instead of guessing what your sales numbers might be next month, your team will start to base their assumptions on reports, phone calls, and financial statements. Your processes and priorities will change to benefit your cash flow. After a while, your team will naturally develop actions and checklists based on their impact on the business’ sustainability.
What do I talk about in a cash flow sync up?
- What do you expect in terms of cash flow for the next few weeks? How much cash is coming in, and when will it arrive? How much cash is going out, and when will it go? How about the rest of the team? What are their assumptions?
- Take a step back and really think about all of these assumptions. Are there any discrepancies? Investigate them. Are your assumptions in line with reality? If not, why? Involve your team in deciphering your assumptions for cash flow.
- Talk about your priorities and urgency. Looking forward, what will be the key movers of cash? Are there certain payouts that you rely on? Is there a client or two that really speeds up your cash flow? Does your team understand the pipeline of cash? Make sure they know what happens with the cash they bring in and what their impact is on this pipeline.
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