088 My Favorite Cashflow Management Tools
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Take a deep dive into cashflow management tools that can help you keep your business finances on track. Managing cash outflows and leveraging technology to streamline your cashflow processes are essential for maintaining a healthy financial state for your business.
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00:00:00
Hey there I'm your host Regan Bashara and I'm the owner of all ease accounting and This is Money through ease. My Free weekly podcast for you, the small business owner that struggles with finances, struggles with money, finds it completely unrelatable and confusing and you feel lost by your bookkeeping and by your business.
00:00:21
This podcast its mission is to help you achieve financial ease by seeing the magic in your numbers and that's why I'm the numbers which so today we're going to be focusing on managing cash outflows and cash management tools that I really love. And if you haven't already, go back and listen to the episode.
00:00:41
Just before this one in the feed, because that is going to take you through the basics of cash flow, we're going to define that. So we you are at least on the same page and know what we're talking about here.
00:00:52
Listen to that episode first and then come back and listen to this one and make sure that you're subscribed to this podcast. Leave me a rating and review if you'd be so kind. It really helps get this podcast. Get this information out to other small business owners that struggle with their finances too. I'm building community with you. I want you to be in community.
00:01:12
With me and I want other people to see this, to listen to this, to get the information that they need to better relate to their finances. So in the previous episode we talked about cash flow basis.
00:01:28
We defined what cash flow is. It is simply the way that money flows in and out of your business. If you picture your business like a bucket, water is the cash that flows in from the top of the bucket because someones pouring into the business and then there might be a hole drilled in the bottom of that bucket and that is the outflow.
00:01:47
Of the cash in your business. So that is a good analogy or a good metaphor for cash flow and that's how we're going to think about that cash flows into your business in a couple of different ways.
00:01:58
And it flows out of your business in a couple of different ways. And like I said, go back and listen to the episode before this one. If you need a refresher on that, we're going to start talking about one of my favorite.
00:02:12
Cash flow management tools and I actually created this myself. Now I didn't come up with the formulas obviously because the accounting formulas are what they are.
00:02:22
But I created this resource in order to not only help myself determine my own business cash flow, but I decided to offer it up as a freebie to people on my newsletter. So go get subscribed to the weekly newsletter at the link in the description. Or you can just go to alleaseaccounting.com.
00:02:44
And sign up there. The tool that I want to talk about that I made for y'all and for myself is the burn rate calculator. So let's talk about what a burn rate is if you were standing there.
00:02:59
In front of a bonfire, throwing money into it, and the money was burning up. And then the ashes were being floating up into the great beyond that speed at which you are throwing cash into the bonfire would be your burn rate, like how fast are we burning through cash in your business now your business may not be a bonfire.
00:03:20
Which just consumes all the money that you put into it with nothing in return. Hopefully that's not the.
00:03:26
But if it is, this calculator will probably give you an indication of that, and this is a free tool that you'll receive within the first couple of weeks of signing up for my e-mail list, because I give you a little bit at a time nobody wants to drink from a fire hose, and so that's not how we do things over on the newsletter. You're going to get a little bit at a time.
00:03:46
And help you set you up for success with your business, finances and your bookkeeping. So you'll get the burn rate calculator from me within the first couple of weeks of you being on my list and the burn rate calculator has two different methods on it. We have a simplified method of calc.
00:04:03
Plating and then we have a little bit more complicated way of calculating your business's burn rate. So again, if you are standing in front of a bonfire, throwing cash into it.
00:04:15
How fast are you doing that? Do you do $1.00 a minute? Well, if you've got $1000 in cash and you're only burning through $1.00 a minute, you're going to be standing there for quite a while. You know, it's going to be several hours before you go through your cash. You burn through it.
00:04:35
If you are standing in front of a bonfire with $1000 and you're throwing in $100 every second, you are burning through cash hella fast and you're gonna wind up burning through that cash much faster than the person that's throwing in only $1.00 every minute so that.
00:04:55
Is what the burn rate calculator is going to help you understand about your business? It's going to help you understand #1 whether you're burning through.
00:05:03
Cash or if you have enough cash sitting there to last you throwing it in to the fire forever, you will never burn through.
00:05:16
That pile of cash, the burn rate calculator is imperfect, and I'm not saying that you should use this tool to determine whether or not you need to close your business. It is simply going to give you information about what's going on with your cash flow on a regular basis.
00:05:34
So the simplified method is to basically look at the beginning of whatever time period you're looking at. Most people look at the year, the year to date, and so they look at how much cash is in their business on January one of the year and then they look at how much cash they have in their business right now. If it's not January 1 and if you have less cash.
00:05:55
Sitting in your account, that is the simple method of saying that your business is burning through cash. But that is just the simplified method because obviously we all know that having less money in your account one day compared to just one.
00:06:09
Is not a good way to look at your burn rate, so that is just a simple method, but the burn rate calculator includes a little bit more robust method of understanding your cash flow and that takes into account not only your starting cash, but how much revenue you bring in on average. So if you bring in $1000 a month.
00:06:29
And you're only burning through $500 in operating expenses?
00:06:33
Each month, that means your business is actually retaining cash every month, right? So your cash pile actually grows even if you're putting cash into the bonfire, the burn rate calculator is going to allow you to plug in some numbers. And if you have consistent operating expenses, at the very least, you've got.
00:06:54
Rent that you pay every month, that doesn't change.
00:06:57
You've got a phone bill. That's pretty much the same amount every month. You've got office supplies and software that you pay for every year, and that's about the same every year. Then we can find what the average is for your operating expenses every month and you can put those numbers into the burn rate calculator and the more data you have, the better off you're going to be.
00:07:17
That's what I always tell folks. More data is better than little to no data, right? The more information we can plug in here, the more details and data we can plug in to this.
00:07:29
Later, the better or more accurate result you're going to have, it might not be better a better result, because it might show you that you're actually burning through cash pretty quickly and that wouldn't be a super great result to get. But at least if we put in a bunch of data and we get that result, then we know it's pretty accurate, right? More data is better than less.
00:07:49
Data. Any science experiment you're running? You want to have a sample size that's like hundreds of people, if not thousands of people, right? You don't want to do a science experiment.
00:08:00
With two people and draw a conclusion from that. That is a terrible experiment, so let's put in as much data as we can and this will also give you what is called a cash runway. A cash runway is another piece of information telling you that.
00:08:20
If you were to continue doing business the way you are now and not change a thing, not change your income, not change your expenses, not change your loans, not change your owners draws. If you were to change nothing about your business.
00:08:36
Would you run out of cash at a certain point in time, or would you be able to operate the way you are now and never run out of cash? That is called your cash runway. And if you think about it as like your business being the plane and you need so many months to get off the runway to lift off.
00:08:57
And you only have enough cash to last you halfway through that runway. You are not going to make it into the air, so that is what cash runway we're using a lot of like analogies and metaphors today, but maybe it's helpful for you to envision a bonfire or a plane trying to.
00:09:12
Take off, right?
00:09:14
But that's what your cash runway is. It's actually giving you a time.
00:09:18
To say if you don't change anything, here's when you'll run out of cash or.
00:09:24
If you don't change anything, you're never.
00:09:26
Going to run out of cash.
00:09:28
You will have infinite amount of time to lift off, right? The cash runway is part of the burn rate calculator because it's giving you that feedback about how many months you have burning through cash at the rate you are now.
00:09:44
Before you run out of cash and what happens when we run out of cash? Well, we have some.
00:09:50
And it's not all doom and gloom. Shut your business down. There are things you can do actually gave you strategies in the previous podcast episode.
00:10:09
Cash runway that you have to close your business.
00:10:12
That is not true, and if that's where your brain went immediately when I said you've got this many months before you run out of cash, if your brain immediately went to ohh, that means I'm gonna have to quit my business. Shut everything down, go get a full time job again. Blah, blah blah. Or go back and live with my parents and sleep on the couch. If that's where your brain went. I want to invite you to investigate that.
00:10:32
A little further dig into that a little bit, maybe do some journaling, maybe take it to therapy, you know, figure out what's going on there.
00:10:40
Because it's not true that if you have so many months before your cash runs out that you would have to close your business, there are a lot of options available and that's why people stay in business because not everybody has a positive cash flow every moment that they are in business, that's just simply not true.
00:11:01
Sorry, sorry, not sorry. Get the burn rate calculator and see for yourself and no matter what results you get on that, I would love to hear about them. I would love for you to tell me, like, hey, I got this number and I am freaking out about it or this is totally unexpected.
00:11:19
To receive this result from the burn rate calculator, I'd love to hear your feedback on it. I'd love to hear what comes up for you now. I'm not a therapist, but I might be able to help you dig into why your brain went to the doom and gloom. I'm going to die. Move in with my parents, go back to my nine to five job. I might be able to help with that.
00:11:39
Some journaling prompts? Maybe. So let's talk about now. Cash flow forecasting, because that's really what we're doing here. When we use a tool like the burn rate calculator.
00:11:50
Cash flow forecasting is very important, just like weather forecasting, I'm full of metaphors today y'all. I just saw the twisters movie yesterday really enjoyed it, really enjoyed it. I thought that I was going to enjoy it, but I didn't realize how much I was going to like. I walked out of there like pretty satisfied. So we're going to use a weather analogy.
00:12:11
Now you need to be able to run the forecast for your business cash flow. You need to be able to look at the numbers and make an analysis, see what's going on and have some expectations for yourself. Have some rules and boundaries. If you run out of cash, what would you do?
00:12:28
Have some plan in place. Right. Know what you're willing to do and what you're not willing to do if you're not willing to take out another loan to keep your business running, that's OK, but it's good. It's good to know. It's good information to have. It's a good decision to make before you have to make it right. Having a cash flow forecast.
00:12:49
Can be very helpful for your business planning and a forecast is going to be a lot more realistic and a lot more accurate than using the burn rate calculator and determining your cash runway. How do you create a cash flow forecast?
00:13:06
Well, we gotta have all your data for that. A cash flow forecast is not accurate unless we are looking at all of your numbers. And sure you could do this in Excel or some spreadsheet Google Sheets. You could even calculate it by hand, but why the hell would you want to do that when instead?
00:13:26
You could have a robust bookkeeping system, yeah.
00:13:31
Robust bookkeeping systems include reconciling every single month, all of your business accounts, all of the accounts where business activity happens. That makes a robust bookkeeping system, because when we look at all your accounts, when we reconcile all those accounts every month.
00:13:49
That means that we have all the data and we.
00:13:51
Know it's accurate also.
00:13:53
Using something like recurring transactions in QuickBooks Online.
00:13:58
Setting up your monthly bills and expenses so that you can forecast what do I have to pay in August versus what bills come due in September and what annual subscriptions do I pay in October? Having that data, knowing what's coming up is the way that you forecast, but it also means that you have to look at.
00:14:17
What's happened prior forecasting includes look, looking at the revenue that your business is going to make based on the months and the years prior. Now I don't have a crystal ball and maybe a numbers which but I'm not able to necessarily see the future. I mean I do have like some.
00:14:37
Weird glimpse things that happen sometimes it feels.
00:14:41
Like deja vu?
00:14:44
But.
00:14:45
Anyways, we're not going to get.
00:14:46
Into that I can't.
00:14:49
Tell the future. Just like on a whim, I'll say it will happen. There will be like glimpses and moments sometimes that I get like, weird things, but it's not all the time, so I can't be certain that like something is going to happen in the future.
00:15:01
Anything can happen.
00:15:03
Uh, Biden dropped out, and vice President Harris is running for president now.
00:15:09
Did anybody like seriously think that was going to happen? I don't ******* think so. I think you're lying. If you were, like, super sure that that was going to happen.
00:15:19
Anyways.
00:15:20
We can forecast only based on what has happened before in our bookkeeping and our lives, etc. So you need to have that bookkeeping system in order to create a really accurate cash flow forecast.
00:15:38
It has to be based on what happened in prior months and years.
00:15:42
And I want to talk now about the QuickBooks Online cash flow forecasting, budgeting and planner tools because I have been using these for my business for quite some time now. And these are tools that have come out, let's say in the past year or two.
00:16:02
For QuickBooks Online users and I really like using this. It really gives me a good idea of what's going to be happening in my.
00:16:12
Business and when I use that planner tool and I.
00:16:15
See ohh Yep.
00:16:16
I got some expenses coming up cuz I've got my annual subscriptions and software renewals and oh, I don't have as much money coming in as I expected. That's really useful information to me. It's not scary.
00:16:32
It's just informative. It's just giving me the information that I need to make a change to plan or prepare for things to get a little weird things to get a little.
00:16:43
Tight.
00:16:44
At least if I know that that is a possibility that's coming up, I can be prepared for it. Now. Again, I'm not saying that I'm, like, reading the future. I'm not saying that I can predict what happens with any amount of certainty any more than you can. But if I can look at these trends and if I can look at these reports and I can.
00:17:06
Anticipate that something might be more probable than possible.
00:17:12
Then I can make a plan for it. I can get ready for that. I can change up my routines. I can change up how I'm selling. I can make some direct offers to people. I can cut back on some expenses like I have things my little tool kit. I just reach into my toolkit and pull out. You know, something to help me with my cash.
00:17:32
But having that data at my fingertips is really useful information, and it's something that I wish every business owner had access to.
00:17:41
But the thing.
00:17:42
Is unless you have that robust bookkeeping system, you're not going to have a great cash flow forecast and it's something that I really want you to have, which is why I created the bookkeeping.
00:17:54
Foundation kit and I really want to drive home for folks that if you are not doing your bookkeeping and you're not paying somebody else to do your bookkeeping, you are seriously doing yourself a disservice if you wait until tax time every year.
00:18:08
And do your bookkeeping at the last minute just so you can file your tax return.
00:18:12
That's not great.
00:18:14
Because all year long you are pretty much living in the dark.
00:18:18
And it is kind of hard to navigate business when you don't have that data. And those tools like a cash flow forecast at your fingertips when you need it, if that's you, if you are one of those people that has not done their bookkeeping procrastinates on it every year, you're not paying somebody else, you're not willing to pay somebody else and that's perfectly fine.
00:18:42
Go grab the bookkeeping foundation kit. It's only $77, and you'll get 30 days free access to my private virtual community for me and all of my clients, that is the space where you do the self-paced study inside the kit and then you bring your questions and concerns and get troubleshooting and support.
00:19:02
Inside the community. That is why I included the 30 days free access to the Community.
00:19:08
As part of.
00:19:08
The kit because you can watch the videos, you can do the workbook. You can use the templates that are included in the kit, but there are going to be questions that come up and I've already created this structure and support for you to get those questions answered and to really work on the material in community with other small business owners that have the same kinds of struggles that you do.
00:19:31
So please go purchase the.
00:19:32
Hit that link is in the show notes or I made it easy for you. Just go to bookkeepingfoundationkit.com and purchase that kit and get into the community because the kit has everything you need to set up the bookkeeping to do it correctly and to stay consistent with it, but I find that it's even.
00:19:53
More impactful and helpful when you have community. You have other people that you can go to ask questions, get feedback from me not only me, but my other clients. You know, everybody's very supportive and kind and helpful inside that community.
00:20:08
So just to recap this episode, we talked about the previous episode, which was cash Flow basics and finding some of those terms. And this week we talked about that burn rate calculator, how to determine how fast your business burns through cash. If you were standing in front of a bonfire throwing money.
00:20:28
Into it. How fast are you doing that?
00:20:31
We also talked about the cash runway, which is you can imagine a plane train to take off. It needs a sufficiently long runway to get up to speed, to create lift. I mean, I can go into the physics of how an airplane flies, but that's not what this podcast is about. Your business has a cash runway. It either has an infinitely long.
00:20:50
Cash runway or you've got only a certain amount of space on your cash runway before you run out of cash and something's gotta change.
00:21:00
And we talked about the importance of cash flow forecast.
00:21:05
Just like you open your weather app and see if it's going to rain and what kind of shoes you need to wear based on that forecast, our business needs a cash flow forecast. We need to be able to prepare and plan for things that we anticipate being a probable likelihood.
00:21:24
So get that burn rate calculator by getting on my e-mail list and get your books in order so you can start do some cash flow forecasting by purchasing my bookkeeping foundation kit at bookkeepingfoundationkit.com.
00:21:37
I'd love to hear from you how you implement these strategies. These tools in your own business. So when you purchase the kit, you'll get access to the community. And I'd love for you to come share your takeaways, what you learn about your business's cash flow. I want you to subscribe to this podcast.
00:21:56
It's completely free to do so and leave me a rating and review that helps push this content to other small business owners who struggle with their finances and need a little bit of help. Thank you so much for tuning in today. You can follow me in all of the places.
00:22:11
Is down in the description. Check out my social links and let's engage further with our business finances.
00:22:18
Bye.