Managing Cash Flow in Your Business

Cash is king. “It’s the most cliché sentence in business, but it’s also the truest,” says Andrea Bone, CPA, founder, and CEO of Accounting and Business Partners. “And you’d be amazed how many business owners don’t understand that their cash flow situation is the difference between going forward and going under.”

New business owners often struggle during their first years in business. “It’s not because they aren’t good at what they do for a living,” says Bone. “They’re mostly struggling with understanding the business side of the business. And in my mind, that starts with understanding cash flow.” She‘s worked with people who were brilliant at their work and doing fine financially – until they decided to start their own business. “Some of them have been broke ever since.”

Bone says understanding your cash flow starts with understanding exactly what you’re bringing in every month and exactly what you’re spending. She starts with her client’s personal budget: what does it take to finance your lifestyle every month? “If you need $10,000 a month to meet your household’s needs and your business can only generate $5,000 a month, you’ve got to make some adjustments – on one side or the other,” she says.

Once a business owner understands their personal financial situation, she helps them develop a clear and accurate view of the company’s financial situation. “Many business owners underestimate what the actual costs of doing business are,” she says. “They count sales and revenue but forget about sales tax. They estimate payroll but don’t factor in payroll taxes. They don’t account for things like debt that doesn’t show up on your P&L statement.”

Bone helps clients figure out their true break-even point: how much they need to have in the bank each month to cover the costs of doing business. If the current revenue isn’t covering the break-even costs, they have only two choices to get to where they need to be: cut expenses or increase revenue. “If they can’t do either of those,” she says, “They have to decide whether this business is actually viable in the long run.”

A good cash flow statement tells the story of how much cash a company has coming in (inflows), and how much it has going out (outflows). It shows how much cash a business has on hand, and how that number is changing over time. If a business owner plans to obtain a line of credit or a loan, it’s one of the essential business documents they’ll have to produce. It’s also the key to repairing cash flow if the owner is experiencing shortages month after month.

Bone says a business owner must develop the discipline to stick to a budget and cash flow plan. That’s where a good accounting firm comes in. “We set up systems that help the owner stay on track,” she says. “We’ll set up separate accounts for payroll, sales and other taxes, and fixed expenses like rent and utilities. Those accounts are off-limits to the owner – they’re not available for spending except on their intended use. The operating account is the only account available for purchasing what the business needs to deliver their product or service.”

Once the owner has a system in place, Accounting & Business Partners helps them create a plan for building up the accounts so the owner has reserve cash on hand. Only after the accounts have reserves and cash flow is stable do they consider the possibility of taking money out of the business as a distribution. “You never know when something might happen that will have a big impact on your business. A fire, a storm, a global pandemic that shuts down the economy… Companies that have cash reserves survive; companies that don’t, don’t.”

Accounting & Business Partners helps their client review their budgets and cash flow plans monthly. “It usually takes a year of careful and disciplined spending before it becomes second nature to an owner,” Bone says. “When cash flow is eating you up, you don’t have any energy to spend on the important stuff. Once an owner sees the benefit of having enough cash on hand and the relief of having enough to weather an emergency, they can relax and focus on doing the work they love and growing the business.”

 About Andrea Bone:

Andrea Bone is the Founder & CEO of Accounting & Business Partners. As a hands-on controller in multiple businesses of various sizes from 1995 to 2024, She has been responsible for everything for the “back office” operations. Her firm manages accounting, payroll, human resources, taxes, banking, insurance, and legal work. Her favorite part in working with business owner clients is seeing them achieve their goals.

Andrea holds a Bachelor of Science in Accounting degree from the University of Texas at Dallas, and a Masters degree in Business from Texas A&M University Corpus Christi. She is a Certified Public Accountant and has over 25 years of experience running businesses as a financial controller and CFO.