Don’t kill your cash flow

By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs

Farmers are no strangers to challenging times. From volatile markets and weather extremes to rising costs of inputs, it takes a lot of grit and determination to run a successful farming business. Part of being successful is managing your cash flow. Below are tips from our team members at Holbrook and Manter who were asked to address this very issue and share one or two things that business owners do that has a negative impact on their cash flow.

Some of our team members give very simple answers while others go into great detail. As you read through you will see themes of the things we see often. Read through the answers here and begin correcting the behavior that kills cash flow. Here are their responses:

They blend company funds with personal — deposit company funds into their personal checking account or pay personal expenses with a company credit card — fully meaning to separate it all out properly, eventually. But in reality, time goes by and correctly tracking the business versus personal transactions becomes a nightmare they face come tax time. The result is that they don’t have a true sense of their company’s cash flow on a regular, on-going basis.

— Tammy Westbrook, staff accountant

Two of the biggest issues that small business owners do, or don’t do, to negatively impact their cash flow is failing to do projections or budgets, and not maintaining accurate records for invoicing and bills. By creating projections and budgets, owners can get a better understanding of future cash flow based on future revenue and expenses. This goes hand in hand with maintaining good records. Maintaining good records allows owners to determine how much they can expect to receive on invoices, expect to pay on bills, and when they can expect to receive or pay these. This gives owners a better idea of when cash will come in and go out, to prevent cash flow issues. — Natalie Bruns, CPA, MBA- senior accountant

It is very important for business owners, especially small business owners, to have separate business and personal accounts and procedures. Do not pay for personal items from a business account or business items from a personal account unless necessary. And, if it is necessary, document the transactions clearly and completely. — Linda Yutzy, administrative assistant

They don’t pay attention to due dates and end up paying late fees and/or interest. They don’t have someone dedicated to collections and let their accounts receivable get behind. — Carmen George, CPA-director

Businesses who don’t invoice customers for services and/or materials provided in a timely manner are making a mistake. Waiting to invoice customers will delay the accounts receivable process and lengthen the time to collect payment. This can negatively impact cash flow as the business has to pay for employee labor and materials before receiving payment from the customer. Unexpected expenses can also send things off track. Try to set aside excess funds throughout the year to pay for unexpected expenses so they don’t negatively impact the cash flow of the operations when they happen. — Danielle Cottle, CPA, CGMA- director

A big mistake we see that results in negative impact to cash flow is simply the business owner not reconciling their bank account. — Joee Brandfass, senior assistant accountant

Businesses who lack solid accounts payable policies and procedures can often experience negative cash flow. Various situations can occur when policies and procedures are not in place, some examples:

• Overpaying a vendor invoice — this can happen by paying the invoice twice, or not checking a “Prior Balance” on the invoice to see if it has already been paid. Overpayments may not always be refunded by the vendor.
• Paying vendor invoices as they are received, instead of when they are due.
• Managers who don’t review vendor invoices for proper pricing, or receipt of goods/services, before they are paid.
• Missing the discount period, or always paying invoices late and incurring late fees.
• Writing paper checks as opposed to electronic payments can create a sense of needing to cash flow the payments sooner than necessary.

An inefficient system can cause these, and many more problems. In addition, the absence of proper procedures can lead to poor internal control, which leads to lack of confidence in the business’s financial reporting. — Linda Lehman, senior assistant accountant

Business owners should make sure they are reconciling their bank accounts often. It would be best to reconcile more than just at the end of every month. By staying on top of the money going in and out of your bank account, you are more aware of available funds. — Julie Roe, staff accountant

Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com.