Managing Your Cash Flow: Your Books, Bills, & Receivables

April 8, 2008 by Elizabeth Potts Weinstein

Did you miss out on any tax deductions for 2005?

How much income will your small business take in next week?

Would you be nervous about defending yourself in an audit?

When you are creating a system to manage your personal or business cash flow, keep in mind that it has three purposes:

Preparing your tax returns and quarterly tax deposits. You must know your income, expenses, and deductions, if you want to claim them accurately on your return (and pay the lowest amount of taxes possible).
In case you get audited. If you get audited, you must be able to provide documentation evidence of your income, expenses, and deductions, or the auditor will disallow those items on your return, and you will owe more taxes (and interest and penalties).
To create historical reports and projections, so you can make decisions. How can you decide how to spend money next month if you don't know how much income your business will generate? How do you measure if a marketing campaign did well? How can you decide if you can go on a big vacation, if you don't know if you have already spent the money? (I'll cover these reports and projections next week …)

Below are some tips in the three main areas of personal and small business bookkeeping that you can use to simplify the process, and make it easier.

Bookkeeping & Checkbooks:

Use software like Quicken or Quickbooks, or an Excel spreadsheet, so you are not spending time doing arithmetic.
Set up auto-download of your bank statements into Quicken or Quickbooks, so you don't spent time inputting information.
Reconcile (balance) your checkbook and accounts on a computer program.
Outsource your bookkeeping to a bookkeeper, virtual assistant, or personal assistant. I recommend that books is the first thing that most small business owners should outsource.
Each family member keeps and reconciles their own checking account, if there is a communication problem resulting in overspending of the main account.

Bills:

Use the auto-bill-pay feature on your bank account website for all your regular bills (utilities, mortgage).
Pay all your bills with your American Express card, and then just write one check each month to fully pay off the AmEx card.
Use one card or account for personal expenses, one for payments that will be reimbursed, and one for your business.

Accounts Receivable:

Have regular payments or paychecks auto deposited into your account. Also set up automatic payments into your savings account, investment account, and IRAs.
Take credit cards. Set up automatic payments via a shopping cart or online merchant account, so payments are made automatically without you having to send an invoice.
Require clients to pay a deposit, pay a retainer (that you deduct from as they incur charges), go on a payment plan, or even pre-pay for projects or services.

Take Action

Automate everything possible in your personal and small business finances. Automatic statement download, bill payments, client payments, savings, investments, invoicing — whatever you can do to take yourself out of the loop.