Erica: 00:00:02

Welcome to QuickBooks mastery for small Business Success. I'm Erica Northrup.

Lee: 00:00:06

And I'm Lee Davis.

Erica: 00:00:07

I handle the tech and he handles the numbers. And together as a father daughter team, we bring decades of experience helping small to medium sized businesses thrive.

Lee: 00:00:16

We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks. Managing finances can be confusing and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes.

That's where we come in, helping you streamline QuickBooks so you can focus on building your business.

Erica: 00:00:38

Each week we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.

Lee: 00:00:45

Let's embark on this journey together.

Erica: 00:00:54

Welcome back to QuickBooks mastery for small business success. This is episode three, leveraging QuickBooks for effective cash Flow Management. I'm Erica Northrup.

Lee: 00:01:04

And I'm Lee Davis.

Erica: 00:01:05

In the last episode, we talked about the most common QuickBooks mistakes and how to fix them. Today we're tackling cash flow because even profitable businesses can run into serious problems. If you don't have enough cash on hand.

Lee: 00:01:21

That's right. So many businesses focus on profit and loss, but they don't have any money in the bank to pay their bills, then they're in trouble. That's why.

And managing cash flow in QuickBooks is critical.

What the takeaway this podcast is the fact that you're going to have a better understanding of how to handle your cash flow needs and what goes into that understanding. Because there are many issues around cash flow that may not be apparent, but when you need cash, it will become very useful.

Erica: 00:02:00

When you need it, you need it, then.

Lee: 00:02:02

That's correct.

And you need to understand that if you don't have the tools in place, like a good banking relationship to lean upon or understanding really how the bank looks at your cash needs, then you're going to be short as far as trying to determine whether you can get the needed cash. Cash that is important to run your business.

Erica: 00:02:27

Awesome.

Well, let's dive in because I really feel like this could be a really powerful episode for our listeners, especially those entrepreneurs that are starting their businesses or they've been in it for a bit and they want to take a bigger leap. So this will be something that will be massive for any of those categories.

So let's first define cash flow because I think a lot of people confuse it with profit. Right. And I think at some point we definitely have to get into kind of the fundamentals of accounting because that is super helpful.

When you talk about QuickBooks, we've done this whole course around accounting because having those fundamentals sets up massively when you're talking with.

Lee: 00:03:08

I think when you understand, at the basic, simplest form, your cash flow is just money in, money out. You know, if you just understand that, that's what it is. I have some clients who decide they want to use Excel to track their money in or money out.

But you can use quickbook to run a report on cash flow, but you have to understand how that report gets put together and how it's going to benefit you. I think you had an excellent point about really kind of, if you don't understand cash flow, you know, what is cash flow?

Erica: 00:03:42

So what is a puppet?

Break it down for us non accountant people because I don't think most entrepreneurs or most people that go into business, I don't think they're accountants. Right. They're interested in something else. Like, I love coaching, but accounting is not my background.

Lee: 00:03:57

So cash flow really is, at the simplest kind of breakdown, is how much money do I have in the bank and do I have enough money to pay my bills?

So if you look at it from that perspective, if you start at the beginning of your bank balance at the beginning of the month and say, okay, I'm going to project this amount of income and I'm going to have this amount of cash needs, which includes my loans, my rent, and, you know, some of your basic expenses. But you know, it's, it's more than expenses. It's how much of my loan payments, how much am I going to pay myself?

Erica: 00:04:34

Oh, that's a good point. I hadn't even thought about that one.

Lee: 00:04:37

Because I got to get paid.

Erica: 00:04:38

Right?

Lee: 00:04:39

And, and so in some ways, you might want to work it from the backward. You might want to say, okay, here's how much cash I'm going to need. And then this is what I got to bring in.

And if I don't bring that in, what bills will I not be able to pay?

Because, you know, part of understanding about cash flow is whether you use a credit card to defer your payment later or whether you use accounts payable, somebody's extending you credit so you can invoice your customer so that you have that money in when you go ahead and pay the bill. It's kind of managing the different aspects of your cash. And sometimes times it's all tied in one big picture, but you can just put it in.

Money in, money out.

Erica: 00:05:27

Money in and money out. Yes, because even let's just say you make X, Y and Z in profit. Because I think that's where the confusion comes in. Your cash flow is not your profit.

It's at the end of the day, after you've paid all your bills, you've paid yourself, you've paid the rent, your inventory or whatever, you have to buy that month at the end of the month. That's what your cash flow is. What you have outside side of those other things.

Lee: 00:05:53

You could probably best summarize it. And some people could just use their bank statement, okay, and have a picture of what their cash in and their cash out is.

But what you've got to understand outside of your bank statement is how much do you still owe? You know, how much do you still owe? That has to come out next month, you know, and how much do you have on your credit card?

When you think about cash flow, you have to think about spending. Do I really need to spend that money? Am I taking on too much debt? In many ways, it causes you to look at.

And you can say, well, when I'm ramping up my business, I'm starting out, what are my basic cash needs? And then as I grow my business, how do I manage my cost?

To make sure that you're able to grow your business in a way that doesn't cause you to get into too much more debt.

Erica: 00:06:52

You're in the green, right? You're not in the red.

Lee: 00:06:54

That's right.

Erica: 00:06:55

Not in the black. You're in the greens, where everyone wants to be, and I'm sure I mean listeners. You, you tell me if I'm wrong sometimes.

Have you ever looked at your QuickBooks and like, I should have more than this. Like, I should have more than what is there? Like, where did it all go to?

Lee: 00:07:10

Right? So I will tell you. I have had more than one client come in for annual meeting to say, lee, it says, I made this much in profit. Where is it? Okay.

And then we break it down. We say, oh, well, you know, what you didn't bring in, you didn't collect this money.

And, you know, because QuickBooks has a nice little tool when you go to run your profit loss, you can run it on the cash basis or you can run it on the accrual basis so that you can quickly see, you know, am I collecting the amount that's owed me and am I paying my bills to get a clear picture of the business?

Erica: 00:07:50

Well, I think this is a perfect segue into.

Now that we've kind of talked about what cash flow is and why it's important and how we all can get blindsided by just having too many expenses in our business. But understanding our businesses, I think, is where the power lies.

Because if you don't understand your business, you're never gonna be able to grow your business if you don't know where you are now. And so I know that QuickBooks has ways that we can track inside of QuickBooks that we can track our cash.

So I think this is what you're talking about, right? How we can use QuickBooks as the powerful tool that it is to help us keep track and help us understand our businesses better.

Lee: 00:08:33

Yeah, you're so, so right. And the basic tool that Books offers is a QuickBooks cash flow statement.

But I would also tell you that, like I mentioned a little bit earlier, running balance sheet and your profit and loss statements are also very useful. And I find sometimes that running a comparative statement to say, okay, where was I last year on my cash in the bank.

Erica: 00:09:02

I think it's good when you look at goals, Right. Having goals and looking at, how did I do last year versus how am I doing now? You know, I can even think about this.

When we go to Costco, I want to spend a little less than we did last month. So comparing and writing things down like, okay, this is what I spent. This is my goal. This is what I spent last month. Yep. I'm doing way better.

So having those goals and being able to compare things to what you were doing, I think gives you a good benchmark as to where you are and where you're going in the future.

Lee: 00:09:36

I would say in as you talked about your Costco example, one of my suggestions, and you can transfer it to business, but when you decide what you're going to buy at Costco, if something's on sale and it entices you to buy it, you have to ask yourself, do I need it?

Erica: 00:09:54

Yep.

Lee: 00:09:54

Because many businesses will decide because they can get a good price on something that they're going to buy, they're going to stock up.

Erica: 00:10:02

Right. But then it sits there. Right. It's inventory that you're not actually using.

Lee: 00:10:06

Yes. It could be equipment you need because you're going to pick up some additional work to make that asset or that equipment pay for itself.

Erica: 00:10:15

Right.

Lee: 00:10:15

There are many options when you think about how you manage your cash. And oftentimes we as Americans buy on the spur of the moment.

Erica: 00:10:25

Oh, yeah, we're impulse buyers.

Lee: 00:10:27

We are impulse buyers. We don't necessarily think it through, how it's going to affect my cash. And if I have to use my credit card to pay for it. That decision.

But that card carries with it some costs. If you don't pay it off, it gets right back to the cash flow. Do I have the cash to pay off my credit card or am I only paying the minimum payment?

And I mean, there are many factors when you look down to where businesses struggle with cash flow and understanding it. You can look at the cash flow, report that statement for sure.

But you can also use your income statement or your profit and loss, and you can take out and sort your profit and loss and look at your highest expenses to your lowest expenses. And how does that compare with a year ago? And which expenses should I look at trying to reduce? I find that a great tool.

And also, you know, having a financial advisor, somebody to talk with about whether you should do X or why should I buy this equipment or should I lease.

Erica: 00:11:40

Yeah. Having a sounding board, having somebody that just can see outside, see the bigger picture.

Lee: 00:11:47

Right. And somebody who might say no.

Erica: 00:11:49

Right.

Lee: 00:11:50

No, I don't think that be advisable now, but let's do. If you think you want to make that purchase, let's do a quick analysis on it. How much are you going to bring in?

Erica: 00:12:01

Right, absolutely.

Lee: 00:12:03

And what's the risk tolerance you have and the ability to carry that particular business line? How much do you have in cash savings? How much have you built up a reserve? Again, it's cash flow.

Erica: 00:12:16

Cash flow.

Lee: 00:12:17

I want to spend all of my money and then I don't have enough to pay my credit card.

Erica: 00:12:22

Yep, absolutely.

Lee: 00:12:23

Because the number one failure of businesses is cash. They run out of cash.

Erica: 00:12:28

They run out of cash. Yeah. I know that QuickBooks has this feature called Cash Flow Flow forecast.

Lee: 00:12:35

Yeah.

Erica: 00:12:36

Now, I don't know much about it, but it appears that it's a way to help you predict based on what you've done in the past and what expenses you have. What might your cash flow look like? 30, 60, 90 days.

I could see where that could be a really valuable tool to someone to look at, you know, okay, if we know that in 90 days, based off of what we did last year, what we brought into the business, and based off of these expenses. Expenses. We're gonna have a low. Like our cash flow is gonna be tanking out.

So that could really help you to turn the wheels and look at some of those expenses you do have and say, okay, are these something that we even need? How can we generate more income in our business in preparation for those months that are coming?

Lee: 00:13:24

Yeah, you've hit it right on the head. I have a client who goes through some very slow times in September, October, November. They've got to be anticipating their cash needs.

And they've made a decision to cut back on payroll, to cut back on some of their fixed expenses. They're thinking about closing whether they really need this office that they're renting or can they get by with something less.

They've got people who work at home, so what are their real needs? And. And they want to spend some other money in this lean time. They want to spend some money that enhances their product, that builds sale.

Erica: 00:14:00

Right.

Lee: 00:14:00

So these are some of the decisions that they look at making. And when you speak about QuickBooks, it allows you to look at o hey, what are my fixed payments? What am I anticipating on my loan payments?

Before I even open the door, how much do I have to come up with my loan payments and my rent and my utilities? And you can quickly make an analysis. I need to anticipate these needs.

Erica: 00:14:27

I guess just having better line of sight to what's going on in your business, if you're blinded to what's going on in your own business, you're never going to be able to grow. You're always going to be just stagnant where you're at.

Because if you're spending all your money that you're making on little things, then you're never able to really put it aside and maybe truly invest in, say, that larger piece of equipment that's really going to make the difference.

But if all your cash is tied up over here, if you're only saying yes to all these little things and not saying, okay, wait, hold a second, let's reevaluate. Let's really look at where the business is. This is where we want to go. This is the vision. This is what we're going to need to invest in.

But if we don't hold back on these things over here, we're never going to be able to get over here, which is really what's going to move the needle in the long term.

Lee: 00:15:21

You won't be able to grow your business if you don't the foresight to make choices. And I think the other piece I didn't really mention, but I talked a little bit about it from the beginning, is the bank.

You really need to have access to a line of credit and that's one of the biggest tools in managing your cash flow because you will have some ups and downs in your business. You need to be able to use the cash without being strapped and you need to be smart about using it and smart about putting it back.

Erica: 00:15:54

Right.

So taking out those appropriate business loans at the right time, then utilizing that cash to the best of its ability and the best ability for your business, and really making your money work for you.

Lee: 00:16:08

I've seen people get a line of credit, use it all up, and then it has to be converted to a loan because they overspent and then they have to have another line of credit. So the idea of managing your cash and having a plan for it, just don't go from month to month without saying no. Here's where I want to be.

Do I need to buy that new truck? Is that really what I need?

Erica: 00:16:31

Can I get away with the one that's done me well for the last 10 years? I mean, it's still trucking along, but.

Lee: 00:16:37

What are my options? And I see some customers, some clients who necessarily, they'll see the money coming in, but they don't see the money going out. Okay.

So having a good understanding of your money in and your money out is important to run your business.

Erica: 00:16:53

What I've been able to understand and glean from even from you and working inside of our businesses, the dashboard has some really great real time tracking ability to be able to see the money coming in and going out as long as you're using QuickBooks effectively.

Lee: 00:17:08

Some of the great dashboards within books are all about your invoicing. And you can tell at a glance, how much do I have that I've invoiced out and how much is in the current bucket, the 30 day bucket, 60.

Oh, maybe I better be in contact with the people who I'm out of at 60 days.

Erica: 00:17:28

Right, right.

Lee: 00:17:29

And I better clean that up. And also your accounts payable, you can look at. Okay, how much do I owe? What do I anticipate having to pay?

Maybe I could stretch this particular vendor, send them 10,000 instead of what I owe them, 20,000.

Erica: 00:17:45

Right.

Lee: 00:17:46

And utilizing the dashboard to help you figure out what I should Pay. So having QuickBooks in a current fashion so that you can get good information is very useful.

Erica: 00:17:58

It also appears that you can automate reports so you can get those weekly cash flow updates. Correct?

Lee: 00:18:05

Yes, you can automate your reporting so at the end of the month you can produce these reports. What's my snapshot look like?

Erica: 00:18:13

Automatically you can set it up. I mean, it's definitely in the future, a podcast that is coming to help people understand how to better automate their business.

And that is definitely one way because like we've been talking about if you don't know what's going on in your business, you're never going to be able to grow. You're always going to be just stagnant, exactly where you're at. Yeah, I love that.

So I want to ask our listeners, when was the last time you looked at your cash flow statement? Have you been able to figure out how to set up these automations? And if not, I want to hear from you.

Would you love to know how to automate those reports? So the end of the month you get this nice report on what is happening in your business. What does the cash flow look like?

Where's my money that's coming in? Where's my, my money that's going out?

Lee: 00:18:59

Yeah. Erica, one of the things I would love to have the listeners comment on is, you know, what do they think they need to understand their cash flow?

What are the tools? You know, what are their questions? How do I get this? Or how do I have a good banking relationship?

How do I make my customers understand the need to pay timely? You know, what kind of tools should I use? I think these are questions that are helpful that would be good for our listeners. Yeah, ask us.

Erica: 00:19:28

Absolutely.

Now I want to hear from you because we've talked a lot about cash flow and we talked about some of the different aspects that you can use inside of QuickBooks. What would you say if we could tell our listeners a couple of actionable steps to do to improve their cash flow?

What are things that they can do to help improve that part of their business?

Lee: 00:19:48

Well, get out there invoicing timely. I mean, get, don't be on Excel. All right? Use QuickBooks and get it set up.

Send it out to invoice timely and have good discussions with your clients about your expectation of their responsibility to pay their bills.

Erica: 00:20:08

Yeah, conversations. I was talking about this with a contractor today. Just people don't communicate, right? Sometimes I'm guilty of this, right?

I bury my head in the sand like all the problems are going to go away. Well, that is not how it works. The problems usually just get worse. They don't get better if you just ignore them.

If you don't look at your bank account, if you don't look at your bank statement, if you don't look at the reports, like you can't do anything about what you don't know anything about, right? If you don't know what's going on, you can't do anything about it in your business. If you just blindly. Well, it'll all work out. It'll all Be okay.

No, that is not how things go. Absolutely. So, yeah, I think the more that you can be aware, that's massive.

Lee: 00:20:49

And I think you also can use the tools within QuickBooks, the payments mechanism, to allow people, when you send your invoices, click on. Make it easy for them to pay you.

Erica: 00:21:02

Absolutely.

Lee: 00:21:02

I do think sometimes that because the people don't want to write checks anymore, they want to just click the button and pay and have it come out of their bank account. We are in that kind of environment today. And I think that I have a client who one of his vendors offered a 2% discount if you paid in 10 days.

Erica: 00:21:23

I was actually wondering what your thoughts on that actually was.

Lee: 00:21:26

Oh, yeah. I think that that's an excellent tool. You'd want them to utilize that 2% when they pay by check, not by credit card.

Erica: 00:21:34

Got you. That makes sense.

Lee: 00:21:36

So for cash or check only, 2%.

Erica: 00:21:38

2% if you pay early. Yes.

Lee: 00:21:40

Within 10 days.

Erica: 00:21:41

Within 10 days. I like that. That is a great piece of advice.

Lee: 00:21:44

And I had another vendor, they discontinued that. They saw their payments drop in the first 10 days.

Erica: 00:21:50

Well, where's the incentive? I can just pay it whenever I.

Lee: 00:21:53

Can pay in 30 days or six.

Erica: 00:21:54

Right. And I think a lot of our expenses for our businesses are upfront. Right. They're in the first half, the first 15 days of the month.

You have a lot of auto renewal for things like rent and other things that come up. So the more you can front, load cash to the start of your month, that's just going to help your whole in general and your whole business.

Lee: 00:22:15

You know, Another suggestion I would honestly tell you is know your credit score.

Know your credit score because when you are seeking, when you're looking for vendors to extend credit to you, they're going to run your credit score because they are taking a risk.

Erica: 00:22:31

Right.

Lee: 00:22:31

And the higher your credit score is, the better terms you get at the bank, the better terms you get on a credit card, on an auto loan.

I mean, your credit score is important and it kind of goes into the next point about how do you delay your expenses and keep within good payment terms.

Erica: 00:22:50

Right. And what is your advice around that?

Lee: 00:22:53

Well, my advice is use accounts payable as a credit tool and. But pay your accounts payable timely. Use it as a tool. You don't have to come up with cash today, but you have 30 days.

Gives you time to get your invoice out and let your customer know they have to make a deposit, Right?

Erica: 00:23:11

Absolutely.

Lee: 00:23:11

So you can pay back.

Erica: 00:23:13

And I guess that runs into you Know, checking for those clients that haven't paid. Right. It's a tool in QuickBooks that allows you to figure out those unpaid.

Lee: 00:23:23

Oh, yes. On the dashboard, you can click on what's out at 30 days, what's out at 60 gives you a whole list.

And you just sit down and start thinking about dialing for dollars. And many times you know your customers and you can say, well, a little bit of a struggle. Could you pay this amount?

Erica: 00:23:39

I feel like that was one of your superpowers. When you were managing the orthopedic business in Nashville. Didn't they have a ton of money that they had not collected?

Something astronomical, and you ended up tripling or quadrupling their business in a pretty short period of time because you went after unpaid invoices?

Lee: 00:24:01

Basically, yes.

I think the insurance companies are your biggest payer in healthcare, and if you don't process your billing and you don't handle the system correctly, you will not get paid. It's a matter of, did you get the right insurance number?

Erica: 00:24:18

All the little crossing the T's and dotting the I's. Right.

Lee: 00:24:22

You hate to say it, but it's getting the right information, timely, getting an invoice, processing that payment, and working with your customer about what their needs are. Maybe they don't need that extra service, but maybe they need another service.

Erica: 00:24:37

Right. Really knowing your clients, knowing your customers, what are their needs, what are their pain points? And really addressing their pain points?

Lee: 00:24:46

Yes.

Erica: 00:24:46

Because they may not be taking you up on this service, but if you offered this one that they really need, that's what they would buy from you.

Lee: 00:24:54

Listen to your customer and look at your competition and know how you want to position your business to handle your customer's needs.

Erica: 00:25:03

So I'm going to put it out to our listeners. Which one of these strategies will you try this week to improve your cash flow?

Because I think there's some great advice here, and I think it comes down as it does with almost anything in life. It's the little things. Right. I think we could almost rename this podcast into the Little Things. Doing the Little things.

Things that are easy to do, but easy not to do. Right. It's easy to automatically set up that report to run at the end of the month.

It's also easy not to set up the report to run at the end of the month. It's easy to check your bank account, but it's also easy not to check your bank account. I mean, that is how it is.

So really, I want to encourage you listeners, like dig into this. Like, just take one thing.

If there's one actionable step that you can take this week to improve your business, which one it is, just choose one and run with it. And you can always build on that as time goes by. Like, that's, that's, that's how we, we build these habits and we habit stack. Right.

We, we start with one thing, get that going, takes a few days, and then we add on. You don't have to do everything at one time.

Lee: 00:26:09

Yeah. I would encourage our listeners, Eric.

One of the things that I have a client I just talked with today, he said, lee, you know, I'm going to take every Friday and I'm going to make sure that I get my invoicing done.

Erica: 00:26:20

Yeah.

Lee: 00:26:20

And I'm going to make sure I look at my bills.

Erica: 00:26:23

Yep.

Lee: 00:26:23

And I'm going to be using QuickBooks more effectively. I'm going to do it every Friday. I'm going to block that time, make sure that I stay on track.

Erica: 00:26:32

Love it. Because that's how people are going to grow. It's how you're going to grow your business is by doing these little things.

Well, we know that managing your money can be one of those stressful parts of running any business. But if you track it properly and make these few changes, you can keep your business running smoothly. And that's what we are here for.

That's what we love at Lee Davis & Co. Is the QuickBooks is the business is helping businesses run a more successful and smoother business where at the end of the day, you're making more money.

And this is one thing that you do so successfully is helping your clients to make decisions that actually move the needle in their business and help them to, at the end of the day, create more profit. Because if you're being smarter with how you're spending your money, at the end of the day, you're going to have more profit to take home.

Lee: 00:27:24

I think you can just say pay attention to your business, pay attention to your customers and bend wisely.

Erica: 00:27:32

If you love your customers and you love them, well, you're going to make smart decisions.

Lee: 00:27:36

Yeah.

Erica: 00:27:36

Yeah. Love that. Okay, well, next episode we're going to talk about how to integrate QuickBooks with other business systems.

Because your accounting software should work with everything else you use. Right. We're going to get to some of that integration.

We're going to get to some of that automation that we've been kind of hinting at and talking about.

I think that's going to be really powerful for people to understand how QuickBooks does integrate into other facets of their businesses outside of just invoicing people. Do you have anything to add to that?

Lee: 00:28:08

No, I think that we've really had a good discussion about cash flow and there are for in our next segment, there's no question there's a lot of integration that helps businesses spend less time on their bookkeeping and more time in their business.

Erica: 00:28:25

Mmm. Love that. Love that.

Well, if you enjoyed this episode, be sure to hit the subscribe button and stay connected with us at our website, which is leedavisandcompany.com and if you need help getting started with QuickBooks, we do have this great three part Quick Start guide to getting started with QuickBooks and you can find that also at our website, leedavisoncompany.com and also while you're at it, you can subscribe to our VIP list and get emails about our podcasts and other things that we're doing. And if you have a QuickBooks question, we want to hear from you. We want to hear what your questions are.

Because part of this podcast is we want to serve you, we want to serve our client, we want to serve our listeners, and we want to know what you want to know about. What do you want to hear from from the two of us?

So send it our way at supporteadavisandcompany.com and we might feature it in a future episode coming up. So I hope you have a great, wonderful rest of your day.

Lee: 00:29:25

Thanks for tuning in and we'll see you next time.

Erica: 00:29:27

Bye for now. Thanks for tuning in to QuickBooks mastery for small Business Success.

Lee: 00:29:34

If you enjoyed this episode, hit subscribe and stay connected with us@leedavisandcompany.com we know.

Erica: 00:29:41

QuickBooks can be overwhelming, so we've put together a free resource to help you get started right away.

Grab your copy@leedavis and company.com and when you do, you'll also get access to our VIP email list where we share exclusive QuickBooks tips, business strategies and support.

Lee: 00:29:58

And we'd love to hear from you. If you have a QuickBooks question or a business challenge, send it our way@supporteadavidsoncompany.com we might feature it in a future episode.

Erica: 00:30:09

We're here to help you simplify QuickBooks books and grow your business one step at a time. See you next time.