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When it comes to making smart decisions about money, Dawn Fotopulos is one of our all-time favourite people to turn to for answers. Dawn, is one of the most popular speakers at QuickBooks Connect. Why? Because she’s incredibly smart, supportive, funny and direct. Most of all, she’s deeply passionate about helping small businesses succeed.
No surprise, then, that we turn to Dawn for straight talking on money matters. We’ve asked her to help us understand how to track our cash better—and keep it flowing.
Count every pound
An overwhelming number of small businesses only have enough cash on hand to operate for 30 days. With this dark cloud looming over the heads of so many entrepreneurs, no wonder most of us put getting our finances in order on the to-do list somewhere between taking out the bins and seeing the dentist.
Instead of dreading—or worse, completely avoiding—getting financial clarity, Dawn says those of us who work for ourselves should start by asking 3 questions:
And here’s the formula for how you can start answering these questions: First, calculate all the money you’ve earned from customers and clients in the past month. This is your revenue. Then, determine who you owe money to suppliers, an accountant, your landlord, the insurance company, a web developer, your dog walker. These are your expenses. Finally, subtract your expenses from your revenue. What’s left is your net income.
How to know if you’re doing OK
Dawn says you should look at your net income every month. Here’s what the numbers will tell you.
If you’re finding yourself breaking-even or in negative income, your gross margin might be to blame. Your gross margin (or gross profit) should be 30% on every product or service you sell. Dawn warns that “most business owners offer deep discounts because they think they need more customers. But what they really need is more (and higher) gross margin.”
Don’t leave it all to your accountant
You’ve crunched your numbers and proven your profitability. But before you rest on your laurels, know that a business in this position could still be going bankrupt. Yes, it's true. This is why Dawn stresses the need to constantly—we’re talking daily—monitor and measure both profits and cash flow. Here’s how she puts it: “Cash is to your business as blood is to your body. It’s the life of the business. It's not enough to manage for profit. You have to watch your cash position like a hawk.”
We know it can be tempting to leave the numbers to the professionals. And your accountant is there to help you along the way. But as Dawn says, “your accountant isn’t going to run your business any more than your mechanic is going to drive your car. And when the bank calls in a loan, it doesn’t call your accountant. It calls you.” So, make sure you stay on top of your own numbers to ensure your business’s success.
Ask the expert
Here Dawn answers some financial questions from our QB Community members. Don’t see the answer you’re looking for? Just post your question below and we’ll try to answer it for you.
Q: I started an immigration business in the middle of last year. My overall expenses are low, but now that I'm paying myself, I'm showing a loss each month. My issue is getting more clients to my business to move the numbers in the right direction. It has taken time. I need more clients!
A: You’ll need to figure out what you want to pay yourself, then back into how many transactions of what average sale per transaction you need to get there. You can do it!
Q: Is there a system for identifying when our cash levels are in trouble? I have a hard time staggering jobs and planning out when money from completed jobs will come in.
A: Great question. You should have 3 months of operating the cash on hand to keep the business above water. Know what your expenses are for the three most expensive months of the year and plan accordingly.
Q: It’s tough living off profits, with no room to invest. I guess “success” means not giving up?
A: Let me share Norm Brodsky's definition of ‘success’ in running a small business: It's being able to live off your own cash flow. That's when there's adequate cash flow to pay for all the expenses of the business and pay for your household. Your business is the golden goose that should support you and your family too. Isn’t that why you’re sacrificing all these sleepless nights? To be able to live off your hard-earned cash. Keep this goal in sight!
Before you go
Want to be smart with numbers and read more? Check out the article below! Alternatively, share your thoughts and experiences below!
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Great post! Seeking inspiration and guidance off an expert is always helpful. Especially when you're like me and struggle with numbers.
@G_Cooper , @Millcreek , @2102 , @Markyc1 , @MaryGS , @glendoa , @Cumbria_Company @ablgroup , @matthew8678 , @nparsons75 Do you have any tips in regards to tracking your cash? Share your tips and experiences in the comments below!
Hi, @EmilyMockett
I would love to know your thoughts on this topic! :)
How do you keep track of your cash and keep it flowing? Do you have any advice for newbies? - or alternatively, how do you assist your clients with this?
Hi Jess,
The best way to keep track of cash is having a petty cash tin. Withdraw the money from your bank account and put it in a cash tin. All receipts for cash purchases must go into this tin. Once the money has ran out, more cash can then be withdrawn if necessary.
Cash is always a tricky one so I try to deter my clients from using cash as much as they can.
Kind Regards,
Emily
Hi @EmilyMockett,
Great feedback, thanks!
Are there any frustrations or negatives of having a petty cash tin? Why do you deter your clients from using cash?
I know, for myself, I don't like having cash. I am all about controlling everything online. I don't like the worry, however, I don't sell anything or need cash-in-hand. So, controlling everything online works the best for me! :)
Hi Jess,
Negatives of having a cash tin can be that it never adds up! This is only down to the fact that staff make take a fiver for example and then not return the change. You have to have strict rules around the way in which the petty cash tin is used (e.g. receipts/vouchers) to ensure that everything is accurate.
I deter my clients from using cash because it can be a nightmare to keep track of in terms of your bookkeeping. The joy with QuickBooks is that you can record everything straight away so records are up to date (the mobile app is great for this) but it still has to rely on the user inputting the information in relation to the cash rather than a bank transaction that pulls through automatically in the bank feed.
Kind Regards,
Emily
Hi, @EmilyMockett,
Thanks for your great comment!
QBs is so wonderful for tracking things and I love the layout of the application.
Yes, I can imagine it's difficult if they are tracking a certain cash flow through the QBs app and then they have additional cash on the side.
I would love to know, how do you encourage your clients to keep their cash flowing in a successful way? Are there any tips you could offer to anyone? :)
Hi Jess,
I would always say ensure that you have an accurate record of your cash at all times. Keep your business cash separated from personal cash too!
Emily
Hi @EmilyMockett,
Yes, I do agree with that. Having a clear divide between accounts is really important.
Money and numbers can be very confusing for newbies but having power over your money is the most empowering feeling. I have made the effort to speak to my bank and learn everything there is to know about managing money. I want to ensure my cash flow is smooth and I am in control. An accountant certainly helps with this process and I didn't realise this until now! It's worth every penny.
Thanks so much for your guidance @EmilyMockett. Have you ever felt overwhelmed with your own money and finances?
Hi Jess,
Money is always a stressful subject whether that be personally or relating to a business.
The best way is to budget. There are many apps you can download onto your phone now that allow you to put a budget in place. You put in your monthly salary and divide it into the value of your outgoings e.g. food, entertainment etc. It will warn you when you are getting close to this limit. It is a very handy app if you are looking to budget or start your savings!
Kind Regards,
Emily
Hi, @EmilyMockett!
That is a handy tip!
Yes, it certainly can be stressful if you're a newbie and if you struggle with numbers, just like me!
A visual representation of the outgoings would be so helpful. I know I love eating out.... But my rent has to be paid too! So, I have to find a happy medium. What apps would you recommend for this? Do you track your own finances?
Thanks, Emily for the great comment!
Hi Jess,
I do keep track of my own finances as I am saving for a deposit on a house so it is very important I know where every last penny goes at the moment!
This article from The Guardian is a great one - it suggests lots of apps that do this: Budgeting Apps for your smartphone.
Kind Regards,
Emily
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