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Top Financial Issues Small Businesses Have and How to Fix Them


cash flow, business strategy & growth, smb

Fact: only 50% of small to medium-sized businesses survive the first 5 years.

A myriad of unexpected issues sprout up for business owners that can create insurmountable challenges – many of them financial in origin. Whether it’s insufficient cash flow or not getting accurate reconciliation reports on a monthly basis, many small business problems are preventable with the right reporting and visibility.

The key to avoiding financial ruin is asking the right questions, and if something’s going awry, knowing what steps and controls you need to take to solve the problem. If not, you’ll be stuck in an endless cycle of fighting fires and letting the business run you, without an actionable plan to address the root cause.

The biggest financial issues facing the CEOs at our clients businesses include:

  • Poor cash flow management
  • Decision making without timely, meaningful financial intelligence  
  • The high, hidden cost of turnover
  • Manual processes that are costly, high-risk and prone to error

What’s the best way to become a more profitable business with higher return on investment? It starts with good cash flow management. You can improve cash flow on your very first day if you outsource collections to someone who does that every day.

Turn your accounting from an Achilles Heal to a Competitive Advantage by getting help to develop best practices and leverage QuickBooks-based systems for your business.

Poor Cash Flow Management

Even profitable businesses can fail due to inadequate cash flow management. The stream of revenue coming in and going out needs to be tracked properly to gain insight into profitability vs. cash (which are very different things). Most traditional financial statements don’t help you improve cash flow. They are designed for historical record keeping, not managing a business.

Management reports and automation of billing and collections processes improve cash flow on Day 1. That’s a critical step because when there are cash flow problems; your cash flow problems can and will catch up with the business sooner or later. And it won’t be pretty when it does.

Many SMBs struggle to deal with cash issues upfront. They do that because of insecurity. Fear from the unknown. If you don’t know the true costs to do every job, you run a bigger risk of under pricing a job and that’s the leading cause of cash flow problems - pricing.

You solve a lot of pricing problems by implementing job costing. Properly pricing your jobs based upon real visibility into the labor and time spent on a project is the single most impactful thing you can do to improve cash flow.

One thing to know with your cash flow is this: you can’t manage what you can’t measure. By utilizing technology and automation, you can optimize pricing and profit.  Tracking time and automatically allocating labor costs will kickstart the process for improved cash flow management. This will facilitate making the right decisions for your business, and target best-fit clients that won’t detract from success.

Download eBook 28 Ways to Improve Your Business's Cash Flow

Managing Payroll

For most SMB’s, and any non profits that provide a service, payroll is the biggest expense – often up to 70-80% of total expenses. The biggest financial obstacle for a small business owner is how to use that labor cost optimally. How do you get rid of time leakage and increase productivity of your people? The answer lies in automated job costing.

Rather than recording your payroll on one line item in your QuickBooks® Income Statement, called “payroll expense”; you’ll be able to get a lot more out of your profitability reporting if you get more granular.  

Use job costing allows you to see Profit & Loss any way you want: by customer, jobs, services, and team. If you view the profitability margin for each, you see which aren’t performing up to par. That’s when you can take the reins for management accounting.

Here at GrowthForce we recommend using either Intuit® Payroll or Insperity® WorkForce Optimization® for automated job costing. Those are the only two systems that allow you to take timesheets out of QuickBooks and allocate payroll using the timesheet data. Its called Time Driven Activity Based Costing (TDABC).  

For example, if you put 10 out of 40 hours into job, for example, it’ll take 25% out of that payroll and charge it to job 1 back inside QuickBooks. THAT labor costing allows true profitability and cash flow management.

When you can see profitability by client or job, you can tag each job with custom fields so you can see profitability any way you want. If you track the lead source of each customer you can track profitability by marketing campaign to see which lead sources generate the most revenue and profit.

Imagine doing that by industry, size, partner or anything you can imagine. Allocating payroll based on the work that people did is how you fix *most* of your financial issues.

Hiring & Retaining Employees

With small businesses, many times the biggest financial drain is the cost of the training and building the expertise of your team. But if your business runs on tribal knowledge,  when a member of the tribe leaves, they take that vital knowledge with them. This is often the biggest hidden cost in a business.  

When someone leaves you’re left with a gaping hole of time and money - in 1 out of 4 companies that cost exceeds $50,000. Those costs are the cost for expensive billable managers and staff to interview, hire, and train someone new to replace a lost employee. And It can take anywhere from 6 months to a year to have an employee fully trained and functional on their own.

How do you deal with this hidden financial issue?

You can’t prevent the natural churn of employees, but when there’s a high degree of turnover, chances are, the biggest issue is you’re not hiring the right talent for the job. It’s important to understand that your business’s value is built upon your employees, or those who share your strategic vision and have the skillsets to drive your organization to success.

Consider offering more than just a higher salary to incentivize talent – you need to look at perks, benefits, and flexible schedules as important factors prospective employees weigh when job hunting. Also, it’s not only their skillsets, but how they’ll fit into your company’s culture and their alignment with your core values. This will help mitigate people leaving due to being a bad fit for the business.

Lack of Standardized Processes

Every person in your business should be following a tried-and-true process to optimize your success. You cannot deliver a consistent and quality product or service if everyone does their jobs differently. How can you tout your product/service as superior, if it’s a dice roll as to the end result?

Does your accountant also follow a clearly define process and leverage the features inside of QuickBooks, every time? Are bills being paid too early? Is payroll coded to the same payroll general ledger account every time - or do you make adjustments in near real-time, and account for payroll based on where people actually spending their time? These are pivotal questions you should be monitoring to fix your top financial issues.

Faulty Reporting & Late Statements

Every moment you’re unaware of your finances is one more moment you’re at risk for failure. In finance operations, if the bookkeeping isn’t completed by a certain day each month, or you get statements and reports late constantly, your business has increased risk. It’s like playing Russian roulette.

There could be a huge problem you are unaware of until you get June’s report two or three weeks into July, and then what? You’re scrambling, and putting out another fire yet again.

You can’t be strategic if you’re constantly in crisis management. Having real-time management reporting is invaluable to making proper spending and operational decisions. And you need to trust the reports and numbers, otherwise, what’s the point? Business is fast paced, and being strategic is all about possessing the right knowledge to have confidence in your decisions.

Become a market leading business leader – learn to keep score, and eliminate the financial issues other SMBs face.

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Fixing Financial Issues

For optimal financial reporting and success, it’s not an overnight endeavor or a light switch you hit. It’s a journey. We believe in “raging incrementalism.” Take a first step and focus on continual improvement. It takes focus to get the right tools and a great team who share your common strategic vision and the goals you to achieve.

Don’t get stuck in a never-ending cycle of financial risk – instead, get the actionable financial intelligence your business needs to flourish and profit. By implementing basic best practices in automated billing and collections, and taking the steps to gain visibility into your accounting and finances, you can improve your cash flow and get visibility into what drives profits from automated job costing.

If you use financial targets to motivate your employees for high retention and satisfaction you’ll lower your turnover cost and increase productivity and profits.

Outsourcing your accounting is a surefire way to unleash the power of QuickBooks, improve cash flow and gain accurate and timely statements when you need them.

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