Tips On How To Manage Your Cash Flow

By Staff Writer

You’re not alone. One of the most challenging things in running your business is managing your cash flow. Add to that, your laundry list of tasks to tackle in operations, marketing, and growing your business and it can feel like an impossible task to get it all done. 

To help ease this challenge in your company, we spoke to Jason Locke, Managing Partner of Wolf & Company, an accounting firm specializing in helping small to medium-sized businesses across British Columbia. In his work, Locke helps many businesses solve their finance needs, and also provides financial consulting for many companies. 

Build Your Foundation 

According to Locke, building your budgets and forecasts is crucial for any business to manage their cash flow. With this foundation, you’re better able to track how your business is actually doing. Are you below or above budget? Why are there discrepancies? Once you get a handle on this information, you’re better able to forecast more accurately on the months ahead and make the necessary changes to your business plan to ensure optimal success.  

Be Realistic 

When you’re preparing your forecasts, Locke also suggests that you get realistic. “People are generally too aggressive with revenues, too light on costs, and incorrect on what the timing of the revenue is going to be,” says Locke. He urges owners to be prepared for the worst case scenario because things often don’t start on time, or they do not grow as quickly as forecasted.

Also, if you are too optimistic, you are making decisions that may not fully pan out and changing course 4-6 months later could be too difficult. You may have already committed to service contracts, purchasing equipment and it can be difficult to recoup those sunk costs or prolong your agreements with providers.

Don’t Treat GST As Working Capital 

One of the biggest mistakes Locke sees, is businesses treating the GST they receive or other government taxes, as actual working capital. “Small businesses use it as their own working capital and the time comes where they have to pay this amount and they don’t have the cash and they then go into debt,” says Locke. 

One way to solve this issue, is to have a separate bank account where you can allocate the GST or other government taxes you collect. This way you are not mixing it with your actual operating cash, and are more prepared to pay when the bill comes due. 

Avoid Treating Your Business As A Personal Bank Account 

All too often, Locke sees that owners have begun to treat their business bank account, as their own personal bank account. They can rack up bills on dry cleaning, meals, and other personal expenses. Locke cautions that owners who do this often make a big mistake, as those expenses are treated as a taxable benefit to the shareholder.  Without having tax withheld, it can often cause a surprise tax hit to the shareholder. 

As well, those expenses are not usually accounted for in any budget or forecasts, which leads to shortfalls. 

He urges owners to remember that this is the company’s money, and to also ensure that they become employees of the company they own, with proper taxes withheld accordingly.  

Managing your cash flow well can better equip you to make smarter, strategic decisions in your company. It’s a worthwhile investment to audit your current processes, and identify opportunities where you can improve your cash flow.  

For more information on Wolf & Company, visit their website wolfandcompany.ca or call them at 604-581-6211.