When it comes to managing the finances of a nonprofit, cash flow is essential to both operations and future-facing decision-making. Understanding cash flow reporting, however, can be challenging for accounting teams, boards of directors, and leadership for many reasons.

Cashflow at its most simple is the inflow and outflow of cash. Cash flow reporting means income is only reported when it is in hand. That is different than accrual-based accounting in which reports are based on accounts receivable and accounts payable. Accrual-based reporting recognizes income when it is earned, and expenses when they are incurred, not when the income is received and the expenses are paid.

An accounting team that is used to reporting accrual-based income would book income when a donation is pledged, for example. If, however, that donation is delayed for any reason, a fiscal year or quarter can end without those funds being received, significantly skewing the nonprofit’s cash flow reports. Because the structure of nonprofits is different than that of for-profit companies, using cash flow management as a tool for a deeper understanding of the organization’s financial standing can be especially helpful.

Endowments, restricted funds, and cash reserves are best tracked with cash flow reporting and not accrual-based accounting for this reason. For many nonprofits, their accounting departments and leadership teams find the complexities of cash flow management challenging and time-consuming. Reports can be data-intensive and difficult to understand. For other nonprofits, the level of reporting can be too basic for more sophisticated boards of directors, such as those with high-powered CEOs and former business leaders of large for-profit companies.

As valuable as the insights that come from reviewing a trailing twelve-month cash flow report can be to forecasting and budget creation, many nonprofit organizations find that the overwhelming amount of data involved in reviewing a year of cash flow reporting makes it difficult to base intelligent decisions on cash flow numbers. For each nonprofit, the right amount of cash flow reporting will vary in order to meet the needs of leadership teams and boards of directors while still remaining accountable to donors, grantors, governments, and charity watchdog agencies.

The big question for donors, watchdogs, government auditors, and grantors is: Where did the money go? If you can’t answer that question, fundraising will likely be increasingly difficult. Because of this elevated level of scrutiny, it is essential that nonprofits manage cash flow with great attention to detail and to the highest standards of grant and government accounting.


Should you run your nonprofit like a for-profit?

It’s a common refrain: you should run your nonprofit like a for-profit. But is it accurate? Despite what many high-powered businesspeople suggest, nonprofits are not merely under-developed for-profits. There are key considerations that nonprofits must weigh, especially when it comes to cash flow.

  • Nonprofits are not focused on asset accumulation, and they cannot use net assets as leverage to raise cash.
  • Nonprofits exist at the mercy of the IRS. The 501c3 designation is a tax charter bestowed upon organizations by the IRS allowing tax-deductible contributions in exchange for their good works. Regular audits are required in order to retain that coveted status.
  • Nonprofits do not always have access to the cash in their bank accounts. With certain donations earmarked for certain programs, restricted donor funds are not counted the same as unrestricted donor funds.
  • Nonprofits are contractually obliged to spend funds in the way in which their charter was formed.
  • A for-profit business’ annual fiscal cycle takes into account year-end distributions, dividends, and taxes while a nonprofit’s fiscal cycles are focused on expenditures and donations, tracked with cash flow management.
  • Nonprofits file annual 990 reports that compare operational expenses and program expenses. Those reports are made public, and donors use them to discern the efficacy of the organization. Without impeccable cash flow reporting, those 990s can show inaccurate spending.

Leaders in nonprofits pay close attention to assets and liabilities. But sometimes that leads to complex fiscal questions. Statements of Financial Positions can look very strong because of endowments, whereas access to those funds can be highly restricted for operational expenses. Impeccable, accessible, and easy-to-read cash flow reporting is paramount to communicating the realities of a nonprofit’s fiscal situation to a board, donor or to government entities.

Donor-restricted funding

Nonprofits often have inflows of cash that are earmarked for specific initiatives, either by the donor or a grant, making accurate management and reporting of cash flow even more important.

To make matters more complex, all nonprofits over $2M have to be audited annually in order to retain their 503c status. Managing cash flow is therefore highly consequential to the day-to-day running of a not-for-profit as well as to the future funding of the organization. For nonprofit accounting departments, the importance of good cash management, and a strong understanding of your cash flow cannot be overstated.

What are some nonprofit pitfalls?

Challenge: Sophisticated BODs require extensive reporting:

A really savvy board of directors (BOD) can be demanding. Your BOD may be made up of CEOs of $50M companies who know what they need in order to make informed decisions about the future of the nonprofit. When not-for-profit accounting teams are asked to adhere to elevated standards of accounting and, additionally, asked to provide sophisticated financial reporting, they can become overburdened, or burned out. Hiring a full, in-house finance and accounting team, however, can be prohibitively expensive especially as reported in operating expenses on the 990. This is one of the reasons that a fractional accounting team is such a powerful and flexible tool for nonprofits.

Challenge: Hiring increases operational expenses

Implementing a leveraged accounting team that fits into an annual budget means that your report on your 990 shows a healthy balance between overhead and project spend. With deep knowledge of 990 preparation, a Signature Analytics team can assist your organization in reporting spending accurately and to the highest possible standards expected by auditors, grantors, Boards of Directors, and donors.

Challenge: Tracking earmarked funds is complex and time-consuming

Due to significant changes in accounting regulation, the accounting departments of nonprofits are under increased pressure to manage their finances with transparency and impeccable reporting practices. New Financial Accounting Standards Board (FASB) standards require nonprofits to report finances in a way that makes it clear which funds have donor restrictions and which funds come without donor restrictions. The updated requirements dictate that nonprofits show these categories on financial statements by having separate columns for “without donor restrictions” and “with donor restrictions.” or by showing separate line items in the revenue section of the Statement of Activities.

Cash Flow Management for Nonprofits in 3 Simple Steps

1. Anticipate and Plan for Future Cash Needs

Having accurate, timely, and relevant (ART) reporting helps build a cash flow management system based on accurate historical data. Looking at a trailing twelve-month (TTM) cash flow statement can give crucial insights into the patterns you have in spending and the ebbs and flows of fundraising. A rolling cash forecast tracks estimated inflows, such as donations and fundraising, and outflows, such as vendor payments and payroll. With accurate data, you can better plan for program expenses and avoid cash flow surprises.

2. Allocate Funds Intentionally

With accurate cash flow reporting, you can make strategic decisions about where to allocate your organization’s funds. It can be much clearer which programs have the highest return on investment (ROI), and which make the greatest impact in your community with the least investment. Cutting underperforming or ineffective programs can improve outcomes for your participants, your donors, and your statement of financial position.

3. Keep funds safe from fraud.

Nonprofits have increased susceptibility to fraud. The greatest risk of fraud stems from internal stakeholders who, through poor internal controls or long tenures, no longer have oversight of their financial dealings. With the additional oversight your organization is under, all it takes is one mistake to compromise the future of your organization. The best way to eliminate fraud and unauthorized use of your company bank accounts is to have an outsourced partner who keeps tabs on the people who have access to your financial systems.

How Signature Analytics Can Help Your Nonprofit

Signature Analytics’ nonprofit accounting services help you make financial decisions based on the highest quality accounting practices, while our day-to-day outsourced accounting teams implement the highest quality donor and government accounting standards.

For additional assistance with cash flow management, developing detailed nonprofit budgets, and audit support, contact Signature Analytics today.

Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.

Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.

Bookkeeper vs. Strategic CFO

Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.

The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.

While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.

What is a Bookkeeper and What Do They Do?

A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:

  • Record expenses, sales, accounts receivables, and accounts payable.
  • Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
  • Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
  • Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
  • Organizing and maintaining various documents such as purchase receipts.
  • Tracking inventory: Bookkeepers track inventory using various accounts to ensure that the stock is neither insufficient nor above the required capacity.

You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:

  • Provide guidance on how to improve your finances
  • Analyze your financial results
  • Create financial projections of profit or cash
  • Make decisions about the financial directions that your business will take

Making such decisions is where a Strategic CFO comes in.

First Things First, What is a CFO and What do They do?

A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:

  • Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
  • Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
  • Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
  • Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
  • Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
  • Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
  • Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
  • Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
  • Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
  • Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
  • Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
  • Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.

Read more: The CFO of the Future: Why You Need One On Your Team

Can Your Bookkeeper Just Become Your CFO?

As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.

However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.

Free Download: Our guide to the Exit Planning process & what every owner needs to know

Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.

So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.

That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.

In What Ways Can Your Business Benefit from Hiring a CFO?

While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.

Free Download: Discover how outsourced accounting can provide more visibility into your business

Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?

It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.

Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.

There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.

Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.



Discover how outsourced accounting can provide more visibility into your business

As a business owner, you run the risk of bankruptcy if you’re not on top of cash flow management. A full 82 percent of business failures are caused by poor cash management, according to a US Bank study.

So, is it easy enough to bring in more money than your business is spending? Although it sounds simple in theory, having a positive cash flow encompasses much more than profitability. Even if your company is currently profitable, it is still at risk for negative cash flow. One common example of this is if you have obligations for future payments that you cannot meet because you’ve mistimed incoming funds.

By maximizing your company’s cash flow, you can help your company receive profits faster, meet targets in a shorter time frame, and lower your operating expenses. Wondering how to improve cash flow in your small business? These 10 tips can help you improve cash flow for your company.

1. Anticipate and Plan for Future Cash Needs

Keeping accurate, timely, and relevant (ART) accounting records allows you to build a forecast for your business based on historical results. At the very least, businesses should be reviewing their cash flow monthly.

Being proactive with your cash flow enables you to forecast your anticipated funds and help prepare for historically painful periods or seasonal trends.

For example, if you find that you are anticipating a future need for extra cash, you may want to start talking to lenders about a bridge loan to help pave the way for future financing. Similarly, if you can anticipate large expenses ahead of payout, you’ll be able to plan your other obligations accordingly to avoid cash flow surprises.

2. Improve your Accounts Receivable

By actively managing your accounts receivable, you can stay on top of outstanding invoices and decrease the time it takes to get paid.

One way you can do this is by encouraging customers to pay early. For example, if your payment terms are net 30 days, consider offering a slight discount for customers paying net 10 days.

Are you currently waiting for checks to arrive? Offering a variety of payment options will make it as easy as possible for a customer to pay you, such as ACH or credit card payments. While these options may come with processing fees, getting money faster is better for your business if cash flow is tight and eliminates time & labor spent on collection. These options can help prevent you from stacking up credit card debt to cover expenses.

3. Manage your Accounts Payable Process

Establishing and organizing your accounts payable process will be essential to improving your company’s cash flow. If your accounting department doesn’t already use software to help manage your accounts, it is a good idea to invest in one. Next, you should communicate with your team which invoices are most important so they can be paid first. Remember, do not let unpaid invoices slip through the cracks.

Another tip? Try to get to know your vendors and extend payment terms as long as possible. Most vendors will ask businesses for net 30, but once you build up a positive relationship, they may be more inclined to offer net 45 or net 60. After all, the longer you have to pay, the more time you have to get money in. You can use a simple payment agreement template to help you when creating your financial contracts.

4. Put Idle Cash to Work 

Another way to improve business cash flow is by putting idle cash to work. Your idle cash is money that is not earning any income.

Chances are if you have large balances sitting in non-interest-bearing accounts, you can find a better place for them to live. You could consider moving them to an interest-bearing account that may earn .5% or 1% APY. Another option is to invest the money in expanding your business, use it to decrease your debts and lower your interest payments, invest in new technology, or prepay some expenses.

Read more: 5 barriers of growth every company hits and how you can break through them

5. Utilize a Sweep Account

Most commercial banks offer a sweep account, a type of account to help maximize earnings on your income by automatically transferring money from your business checking account to your savings account. The sweeps happen at the close of business each day, and you can set the amount, typically in $500 increments.

Should your checking account dip below your minimum requirement, the funds will be automatically transferred back into your checking account to cover the outlay. This risk-free option makes it easy to build your savings for a rainy day or your next major investment.

6. Utilize Cheap and/or Free Financing Options

If you are looking to invest in your company through low to medium-cost purchases such as upgrading your computer system, buying new furniture, or replacing your company vehicles, you should take advantage of financing options that have low or no interest for the initial period of the loan.

Using this strategy for a business loan will help you save money by cushioning the cash hit to your business. If you pay off the full loan upfront before the interest rates kick in, you will save even more, therefore, making the most of your investment.

7. Control Access to Bank Accounts

To maintain positive cash flow, it is crucial to protect your assets. The best way to eliminate fraud and unauthorized use of your company bank accounts is to make sure the proper safeguards are in place.

Common safeguards include keeping the number of people who can access these accounts to a minimum, securing your IT infrastructure, frequently updating passwords, protecting your credit and debit card information and bank accounts, and using a dedicated computer for banking.

8. Outsource Certain Business Functions

It’s not necessary to hire full-time employees for every business function. You should evaluate your business needs and identify areas where it may be more cost-effective to outsource. IT management, human resources, accounting, payroll, and marketing are all functions that could be outsourced.

There are many firms, including Signature Analytics, that specialize in providing experienced professionals to handle specific business functions and manage cash flow issues. Outsourcing can save your business money, offers a flexible staffing model during the ebbs and flows of your business cycle, and it can also increase your efficiency.

9. Renegotiate Existing Service Contracts

Another tip to increase business cash flow is to review service plans and contracts regularly. Start by looking at your internet, phone bills, copiers, software support, and janitorial/building maintenance contracts to pinpoint opportunities to save.

Improved technologies and increased market competition have driven prices down on many services, so it’s worth taking the time to shop around for a better deal.

10. Maintain a Weekly Rolling Cash Forecast

A rolling cash forecast is a good practice for improving cash flow overall. You don’t need expensive programs to do this; Excel will easily allow you to project a weekly rolling cash forecast. You should include all estimated inflows, such as customer receipts, and outflows, such as vendor payments and payroll. Record this data on a weekly basis at least.

Your rolling cash forecast will help you plan staffing needs, commit to new vendors, and ensure funds will always be available to make payroll and vendor payments. As a bonus, your forecasting will help you estimate and understand your company’s sales cycle.

Read More: The Top 5 Financial Reports Every Business Owner Should Review

How Signature Analytics Can Help Your Company 

By implementing these strategies when managing cash flow, you will quickly get the upper hand on your company’s finances and learn how to increase cash flow within your business — so you will soon reap the benefits.

At Signature Analytics, we have a team of expert accounting and financial professionals including accountants, controllers, financial analysts, and CFOs; all dedicated to providing the best level of service at a price that makes sense for your business.

For additional assistance with cash flow management, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.

In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.

Read More: A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.

Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.

No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.

While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.

If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.

The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.

Critical Next Steps

The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:

1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:

  • Creating a separate class in your Quickbooks file
  • Creating a separate balance sheet to track the use of the PPP loan
  • Opening a dedicated bank account used solely for eligible expenses
  • Review and update cashflow scenarios to ensure they are still valid

The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.

3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.

4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:

a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.

– OR –

b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.

5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.

6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.

7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.

8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.

9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.

10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.

Read More: Your Guide To The Main Street Lending Program

Final Thoughts

It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.

For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.

Related Resources:

Most up-to-date resources as of 05-27-2020:

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

Read More: 10 Tips to Help Improve Your Company’s Cash Flow


We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

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What is petty cash in accounting? Petty cash, also referred to as a petty cash fund, is a small amount of funds that are kept available for companies to use for small purchases which come up from time to time in the course of business operations. That’s a long way of saying it’s “shoebox money” for expenses which are usually too small to bother using a credit card or writing a check.

Need some postage stamps? Go to the petty cash. Stapler broken? Petty cash. Reimbursing an interview candidate who needed to pay for parking? Petty cash. Pizza for the team working after-hours? Petty cash.

Petty cash funds are small, but they do need to be managed properly. You’ll want to ensure that the money isn’t mishandled, and you’ll want to make sure that those little expenses are accounted for when tax time rolls around. Here’s how you can set up an effective, easy-to-manage petty cash system.

The Advantages of a Petty Cash Fund

Keeping a certain amount of money—say $100—on hand in the form of petty cash is a good idea. A small petty cash fund:

  • Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense
  • Allows staff members to make small, authorized purchases without filling out an expense report
  • Reduces the need for managers to pay for purchases out of pocket
  • Cuts down bookkeeping
  • Provides a convenient source of funds

How to Set Up Petty Cash Funds

Typically, one employee is responsible for controlling petty cash funds. This person is known as the petty cash custodian. The custodian will maintain and document all expenses from the petty cash. By giving this responsibility to one custodian, it means that you will retain internal control over the money.

You can set up your petty cash float – the maximum, fixed amount of on-hand cash – by cashing a check, usually ranging from $100 to $500 depending on the size of your business. Larger companies often have a petty cash fund for each department. The amount you select for your petty cash fund must be sufficient to cover small expenses over a designated period, usually one month. You will also need to set up a petty cash account in the asset section of your financial reports.

The custodian is responsible for keeping the petty cash funds in a safe place such as a lockable box only to be accessed when needed. Even though the petty cash account is small, it needs oversight. When the custodian disburses money from the petty cash fund, he or she will write out a petty cash receipt which will be signed by the employee who is receiving the funds. The receipt will also show the amount disbursed and what the fund is being used to purchase.

Establishing Internal Controls for Petty Cash Funds

When you are setting up a petty cash system for your business, you must establish clear and concise conditions so that the funds are not misappropriated. It’s a good idea to specify what things petty cash can be used for; the petty cash policy should be in writing, and available for review by your management team and your employees. Typically, you will want to limit the number of individuals who have access to petty cash funds.

You don’t need to give every employee access to petty cash, and your petty cash custodian should be the only person permitted to disburse it. It should be up to the custodian to decide whether each expense is appropriate based on your company’s petty cash policy.

Make sure that there is a reasonable amount of money in the petty cash fund and that it is enough to meet your company’s needs. Always make sure that the custodian replenishes the fund when it is getting low – making sure, of course, that you know where and how that money has been spent.

How to Manage Petty Cash Funds

Even though the expenses running through your petty cash funds are small, they will still need to be managed properly. Tracking all of your petty cash expenses as part of your bookkeeping system ensures that all tax-deductible expenses are captured.

Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float. For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. Every time your custodian disburses money, he or she will fill out a receipt so that at any point in time, the total of the money and receipts in the petty cash box will add up to the initial amount of the petty cash fund.

As the balance remaining in the petty cash fund becomes too small to be of use, the custodian should tally and summarize the receipts and exchange them for a new check made out to cash to equal the total of the receipts. When the check is cashed, the funds will be added to petty cash so that its original level is restored.

If the custodian finds that the petty cash fund is too small—this is the case if the fund needs replenishing every few days—then he or she may increase the float. This would then be recorded in the petty cash accounts. On the other hand, the custodian may find that the fund amount is excessive. In this case, the surplus petty cash should be taken from the fund and deposited in the company bank account.

Petty Cash and Taxes

If this sounds like a lot of work just to maintain a $100 fund, there are good reasons for it. Typically, all or most of your petty cash purchases will be for business expenses, which means they will be deductible from your business taxes. That is why it’s important to keep a record of each expense. If you fail to document them all, you will not be able to deduct them from your business expenses for a purchase. You can find out more information about the requirements for petty cash and recordkeeping by reading IRS Publication 583.

Petty cash is a useful tool for small and medium-sized businesses as it keeps money available for small expenses. Recording those expenses helps to budget for future ones, and even though those might be small, they add up. When all disbursements are recorded diligently by the petty cash custodian and the money is replenished on a regular basis, using petty cash can be a real timesaver.

We Can Help

Of course, overseeing a petty cash fund is still going to add another layer — albeit a small one — to your accounting function. Contact us if you need help establishing a petty cash fund and its conditions.

It’s not until you start filling in the terms and numbers of your business plan that it shifts from the conceptual to the actual. While your marketing strategy is an interesting read, it’s the figures on the bottom line that will help you get a business loan or investors.

To justify your plan with good numbers, you need a distinct section in your business plan, where you can lay out your financial forecasts and statements. The financial section of your business plan is one of the most critical parts of the whole document if you wish to acquire funding.

The Purpose of the Financial Section of a Business Plan

Before you start organizing your business financials, it’s important to be aware that this is not the same as keeping accounts. There is a significant difference. Accounting takes a historical view of financial information, whereas financial business planning looks to the future. The financial section of a business plan has two primary purposes.

The first is to attract investors. They will want to see your numbers growing and that you have an exit strategy in place for them when they can make a profit. A bank will also want to view these figures, so they know you will be able to pay back your loan. The second purpose of the financials is for your benefit. It gives you a dependable guideline to see how your business is going to do.

What to Include in the Financial Side of a Business Plan

The financial side of a business plan includes various financial statements that show where you want to take your company. This plan helps lenders, and investors see how much financing your business needs and if it is worth their while getting involved.

There are four financial statements that are essential to include in a structured financial plan. These can help you arrange your financial projections for the next three to five years. Your financial plan should consist of the following financial statements:

1. The Sales Forecast

A sales forecast can be laid out in a spreadsheet as a projection of your sales for the next three to five years. Use different sections for each sale type and a separate column for every month for the first year, and monthly or quarterly columns for the next three to five years.

The most definite way to indicate your sales forecast is by providing separate blocks for pricing, unit sales, calculated sales, unit costs, and unit cost of sales. Including all these figures will help you calculate your gross margin, which amounts to sales less the cost of sales. It gives you a useful figure for comparing your forecast with other industry reporting ratios.

2. The Expense Budget

An expense budget helps you figure out how much it will cost you to make the sales you forecast in the previous section. To make it completely clear you are going to need to differentiate between fixed costs (such as utilities, rent, and payroll) and variable costs (such as marketing costs).

Again, don’t forget that this is a business statement, not accounting, so you will have to estimate things like taxes and interest. Keep it as simple as possible when making your operating expenses estimates. For example, to calculate your expected taxes, multiply your estimated profits by your tax percentage. To evaluate and determine interest, multiply your estimated debts by an interest rate.

3. The Income Projection Statement

The income projection statement is the section where you list your projected profits and loss for the next three to five years. You can use the numbers you’ve included in your sales forecast and expenses to help you calculate these figures. You’ll also have to assess your assets and liabilities which are not covered under your income projections. You may wish to create a separate statement for these or include them here. Think about inventory, money owed to you, and assets such as equipment. Under liabilities, you will list any possible outstanding loans and any other bills you may not be able to pay.

4. The Cash-Flow Statement

The cash-flow section of your financial business plan indicates the movement of money in and out of your business. This section is based on a combination of your sales forecast and balance between your projected income and expenses.

If your business plan for the year is to start a new business, you will need to create a cash-flow projection. For an existing business and most clients we serve, you can base your cash-flow statement on balance sheets and profit and loss statements from previous years. Be realistic about the time it takes for your invoices to be paid in full. Being practical in this way can ensure you have no surprised down the road; primarily if you rely on invoices to pay 100 percent of your expenses.

Other Statements for a Financial Business Plan

There are other statements that you can include in the financial section of your business program. While not essential, they can be beneficial for you as you grow your business. These include:

The Personnel Plan

You may decide to create a personnel plan. By creating this plan, you can describe the different members of your management team and what they offer the rest of the workforce regarding management, training, and knowledge of your market. The plan should justify their salary and/or equity share.

This financial condition section can also be used to list each different department in your company, if applicable. You should even name members of staff or departments that you have yet to hire.

The Break-Even Analysis

The break-even analysis is a calculation of how much your company will have to sell to cover your expenses.

For example, consider a landscaping business. It will need to be ready to function with all the vehicles, equipment, business cards, marketing, and all the landscapers working to generate income. If you were to only landscaped one garden, your business would be operating at a loss. You may not even make enough money to pay for gas and materials, let alone wages.

Creating a break-even analysis can give you an idea of how many landscaping jobs you would need to do to cover your expenses.

You may feel overwhelmed at the prospect of creating a financial plan, and it can undoubtedly be challenging. But it is essential that you fully understand each section. As a business owner, you may consider hiring a bookkeeper to handle your account once your business is running. You will need to understand your business’ financial statements and use them as a basis for making decisions about your company. Numerous available software programs can help you put it together and lighten your load.

In the long run, the financial statements in your business plan will outline the growth and potential of your business. And once you can show where your financial performance figures are coming from, you will significantly increase your chances of getting funding from lenders or investors. So, don’t skimp on your financial statements, take the time to learn how to do them properly, and get them right. It will be worth it in the long run.

We Can Help

If you need help determining which financial statements you need or require consultation when setting up a business plan, we can help. As an outsourced accounting firm, we provide ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant).

We complement and work alongside your internal staff to provide ongoing accounting and finance support for your business. These areas are necessary to effectively run your company, analyze operations, and guide business decisions. Contact us today so we can get started.

Crafting an annual budget is one of the most important financial aspects of a business, but often gets overlooked.

Business budget planning is an essential task that is frequently neglected at small and mid-size companies. So why is it so important? Well, mostly because it is a process that prepares your company to answer critical questions about what the next 12 months will look like:

  • What are you projecting sales to be next year?
  • Are you expecting margins to improve next year?
  • Do you plan to hire additional employees?
  • Will you have any significant capital expenditures soon?

These questions (and many others) are typical of investors, financial institutions, potential strategic partners, and financial buyers. Every business, regardless of size, should have the answers to these questions to be able to plan the annual operating budget accordingly.

Having a chief financial officer, or CFO, as part of your company’s C-Suite executive team can be an asset in this process.

A CFO will have access to and be up to date on the most recent financial data pertaining to the company. These resources can help the company craft its budget, as well as short and long-term financial goals. Strategic budgeting is a skill that any good CFO will have in their arsenal. It’s just a matter of working as a team to bring all the relevant information together to plan for the future.

Read more: What CEOs Need From Their CFO

If you are overwhelmed by company budgeting planning, don’t have a CFO, or don’t know where to begin, below are some tips to help you get started:

1. Consult All Departments

The annual budgeting process should not be completed behind closed doors by one member of the accounting or finance team. Instead, all the departments within the company should be part of the conversation and provide feedback, insights, and expectations for the following fiscal year.

Who should contribute to the conversation? Be sure to loop in:

  • The sales team: they can assist with realistic revenue assessments
  • The manufacturing or service team: they can advise on costs of delivery and any large purchases required to update machinery
  • The research and development team: they can discuss expected expenses as well as the timing on any new products anticipated
  • Any other departments who can add value to the conversation

It is encouraged to incorporate feedback from each department as the results are much more likely to be accurate. Therefore, project completions are possible for the upcoming fiscal year. Too often, companies that do complete the annual budget planning process estimate an overall percentage increase over the prior year’s actual income – this is something that should be avoided.

2. Estimate Revenues

Expected sales have a significant influence on costs, including employee headcount, but it can be very challenging to make projections accurately. Here are some ways to come up with the best estimate:

  • Consider the recent monthly growth rate experienced by the company and decide if it can be continued.
  • Review industry guides and other expert publications that focus on your industry.
  • Review financial information from a number of your competitors, if available.
  • Communicate with your current customers to better understand their expected needs of your product or service.
  • Discuss the expected sales with your sales department and set expectations to help determine compensation for this team.

3. Determine Expenses

Once the expected revenue figures are estimated, the focus can shift towards expenses. Here are some considerations:

  • Some costs relate directly to revenue, whether they be inventory or employee services. Typically, the gross margin of a business does not fluctuate substantially unless new products are developed, inventory prices change, or inefficiencies are identified within the manufacturing process. Use this time to challenge your employees to identify cost savings related to the delivery of products or services.
  • Other expenses are fixed costs such as rent, insurance, equipment leases, and certain other services purchased. These expenses may be easier to estimate; however, you should consider reviewing the policies in place, especially around insurance. Use this time to determine if better insurance rates are available or if different coverages would be more advantageous.
  • Employee compensation should always be established to be in line with revenues and related growth in the coming year. Many companies believe that all employees require annual raises, but if the results show a contraction in the business, then it may not be reasonable. Consider tying aspects of compensation to the growth of the company. With today’s inflationary trends, make sure you include cost of living wage increases for your employees in your budget and projections as well.
  • Along with compensation, estimating employee headcount is a critical aspect of the budgeting process. It is important to identify when you will need to hire, how long that hiring process takes, and what experience level would optimize the operations.

4. Identify Capital Expenditures

Often not considered in the budgeting process are those large or expensive purchases which are vital to the continued success of the business. These may include new computers, systems, machinery, vehicles, furniture, etc. It is essential to keep in mind that each new employee hired will likely require a certain amount of capital expenditure.

Investments in equipment or processes that are directly related to your product or service should also be considered. Will you need to purchase any new materials next year? Is there old equipment that needs to be updated? Avoiding investment in equipment can impact your output, quality, or delivery timing, which can directly impact your revenues.

5. Calculate Cash Flow

While putting together a projected income statement can feel great, it is just as important to calculate the expected cash flow of the business.

Your company may pay bills faster than customers pay theirs. You may need to purchase inventory well in advance of sales if acquisition time is significant. In cases such as these, a cash flow statement should be created using the income statement as well as AR/AP turnover rates and other metrics from the balance sheet.

Read more: These Are the Four Financial Statements You Need to Grow Your Business

6. Be Conservative

While it may seem advantageous to show investors that the company will significantly grow, it’s a possibility that results may disappoint. Even worse, business decisions may have been made using such projections (aka best guess scenarios). When in doubt, it is a good idea to be more conservative and leave some room in the projections in case of emergency, unforeseeable large expenses, or a drop in revenue and sales.

7. Start Early

Businesses should begin the annual budgeting process three to four months before the start of their fiscal year to allow sufficient time to craft a detailed estimate before the year ends. However, the annual business budget should be monitored and updated on an ongoing basis. For this reason, it’s never too late to get started.

8. Monitor, Evaluate & Reforecast

Once you complete the budgeting process, the biggest mistake you could make is to file it away only to pull it out again at the end of the following year.

A budget should be monitored monthly, or sometimes weekly for smaller companies. Budgets should be edited if circumstances change, like bringing in more fruitful accounts or losing critical customers.

If you have a CFO on your team, they can help facilitate a strategic forecasting process that extends beyond the annual budget and encompasses more of a three-year plan. This can help push your company to think about future business decisions and goals.

Furthermore, budgets should always be compared to actual results to understand why there are differences. Doing this will help monitor spending money throughout the year and help management make important decisions in relation to the business. Put these tips into action and learn how to prepare an annual budget with our in-depth guide.

We Can Help

Signature Analytics will help guide your company through the annual budgeting process. We will work with your management team to create a budget for your business and monitor that budget throughout the year.

This would include analyzing the budgeted versus actual results quarterly and helping forecast accordingly. We can also perform industry and economy reviews to assist with the forecasting process and provide benchmarking data.

If you want assistance creating (or improving) an annual budget for your business, contact us today for a free consultation.


Most companies are looking to grow and expand. But the process of taking out a business loan isn’t an easy journey down a well-paved road.

More than one-third of all small businesses who apply for a loan are rejected. And most don’t understand why. Here are five reasons why your business might be rejected for a loan and what your company can do to increase your approval chances.

1. Not Supplying the Correct Documentation

Let’s face it; paperwork can be overwhelming and confusing. However, it shouldn’t be the reason a business gets denied a loan. Sadly, it is one of the most common causes of rejection.

Not submitting the correct documentation for a credit renewal will increase a company’s chance of getting rejected. Here are the types of documentation you should expect to present:

  • Annual financial statements
  • Tax returns and previous year data
  • Personal financial statement from the guarantor (who is typically the owner)
  • Financial projections for the next 1-2 years, especially when an increase is needed
  • Loan contracts per the loan agreement. This shows the financial health of the business and eliminates loan defaults or lump-sum repayments occurring at the last minute, which can cause financial stress.

If your business plans to ask for a loan, having these documents prepared can increase the chance of being approved and ensure your line of credit is revolving per plan.

2. Lack of Cash Flow

Cash flow is the very first aspect that a lender looks into when considering granting a company a loan. Banks want to see that a business has enough money to make the loan payments as well as other expenses like rent and payroll. If a company has irregular cash flow or if they experience seasonal variations, these could be a red flag for a lender.

A lack of cash flow is one of the primary sources of business failure. If a lender rejects you for a loan and states cash flow being the reason, it should be a signal to take a hard look at how cash flow is being managed. Implementing accounting software is a good place to start. If that seems overwhelming or if you don’t have the manpower, then hiring an accounting firm could be a helpful alternative to get back on track. Also, be diligent about collecting payments due from customers—don’t let invoices drag out to 60, 90, or 120 days past due. The more proactive you can be, the better off your business will be.

3. Poor Credit or Lack of Credit

The National Small Business Association published a Year-End Economic report for 2017. The report stated that for businesses for which capital availability was an issue, 31% reported they’d been unable to obtain the funding they needed.

Business credit is important for small companies as it enables them to obtain the capital needed to grow. This additional capital might be used to purchase additional inventory, hire employees, and cover other necessary expenses.

For example, a company with a FICO score under 640 is likely to be rejected for a loan. If that company needs a loan, there are a few things they can do to improve their credit score. They can start by paying bills on time, opening multiple credit cards, keep revolving debt low, and regularly monitoring their credit report.

4. Haven’t Been in Business Long Enough

The rate of small business failure may be shocking to learn. Here are some quick facts:

  • 20% of businesses will fail in their first year
  • 30% of businesses will fail in their second year
  • 50% of businesses will fail in their fifth year
  • 70% of businesses will fail in their tenth year

There are many reasons why a business might fail, which is precisely why banks want to see a track record from a company — to prove that they can pay back a loan.

Lenders want to see that a business has experience in the market and brings in substantial revenues. Of course, it’s possible to have a successful and thriving business without having been operating for very long. In this somewhat unique situation, it would be a matter of finding the right lender. If a business owner fell into the more common category of not being incredibly successful from the start, they can use personal assets as collateral to secure cash and have a better chance for approval.

5. Lack of Collateral

Small and midsize businesses can be seen as a risk to many lenders. While not all small business loans will need collateral, it would 100% be required if a business is directly borrowing against an asset. Without secure assets such as equipment, inventory, or property as collateral, your business loan could be denied.

Similar to a business just entering the market, leveraging personal collateral can demonstrate that your dedication to the business while also reassuring the lender. Putting up personal assets, like a house or car, as collateral can lower the interest rate on the loan. If personal assets are not an option on the table, you may need to look into alternative sources of financing.

The process of taking out a business loan can be tedious and complicated for many small and midsize business owners. While these are only some of the possible situations your company might face when seeking a loan, you can always contact Signature Analytics for help. We can assist in securing new lending or ensuring your line of credit is revolving per plan, so contact us today.

The full financial picture of any company is like trying to solve a scrambled Rubik’s cube: it’s complicated. This makes proper accounting essential to both the financial health of your business and its overall potential for longevity.

There are two standard methods of business finance tracking: the cash method and the accrual method. Understanding the difference between these two methods will help you in determining which method is the best fit for your business.

What is cash accounting?

The cash accounting method tracks income when it is received and expenses when they are paid and is the most popular method for small businesses and personal finances. If you’ve ever balanced a personal checkbook or entered what you’ve spent and earned into a spreadsheet, then you have a good idea of how cash accounting works.

For example: you own a business that builds websites for companies and finish a website in August, but your company doesn’t get paid until October, then that income is recorded in October’s books. If the client never pays, then the income is never recorded.

The benefits of cash accounting

The cash accounting method accounts for real-time transactions, meaning that transactions are recorded when cash changes hands. For small businesses who are worried about overspending and want to know exactly how much cash they have on hand, the cash accounting method may be a good fit for your business.

There are also tax benefits to cash accounting. Finance and accounting professionals can work with your tax personnel to determine the most advantageous method for your situation. Since some companies are restricted from using< the cash accounting method, it’s important to consult with an accounting professional who can help to identify whether cash accounting is a viable option for your business.

The disadvantage

While cash accounting is essentially a “simpler” way of maintaining a business outlook, it can also produce an erroneous picture of your company’s performance since revenue isn’t recognized until the money is in the bank.

What is accrual accounting?

Accrual accounting takes a more hypothetical approach to your big-picture business finances; accountants or financial firms count income when it is billed and expenses when they arrive.

Unlike the cash method, the accrual method records the client invoice the day it is received, even if it isn’t paid until a month later. In the accrual method, accounting professionals will use a balance sheet to record the offsetting asset or liability so you can maintain a good sense of your business’ current financial status.

The benefits of accrual accounting

Since accrual accounting records transactions upon completion of a delivery or service, it allows a company to see how well it’s doing and have the ability to make better predictive decisions regarding the future.

Because you know how much is anticipated in the short-term (regardless of it being in your account yet), accrual accounting gives you a better sense of your cash flow needs as well as any outstanding expense liabilities that are due. Financial professionals will usually add another reporting function that lists actual cash available at any given time.  

The disadvantage

Since the accrual method records all transactions, regardless of the payment being received, your books could could reflect revenue even if your bank account is completely empty.

Which one is right for your business?

There are a few factors to consider when deciding whether to use cash or accrual accounting methods. Here are a few things to keep in mind:

Size and Industry

The size and industry of the company you run are major determining factors. For instance, C corporations who generate over $10 million and S corporations who generate over $20 million in average gross revenue over the past 3 tax years, are excluded from using the cash accounting method.


The size and industry of the company you run are major determining factors. For instance, C corporations who generate over $10 million and S corporations who generate over $20 million in average gross revenue over the past 3 tax years, are excluded from using the cash accounting method.

Ease of Reporting

The accrual accounting method is more difficult to report from a tax perspective, though financial service experts can easily handle this aspect.

Insight into your business

Cash accounting doesn’t give much insight into the overall health of your business as far as sales, expected income, or expected expenses go.

Your bottom line is too important to track haphazardly, either by using the wrong method or not using one at all. Learn more about how to track your company’s income and expenses.

Financial experts can also give you more insight into which type of accounting method makes the most sense for your business and set it up for you so that you can keep focusing on the most important thing: running your company. Hiring a reputable financial firm can help your company reduce the risk of spending too much or straining vendor/contractor relations with late payments. Get expert advice now.

You’ve heard it before, this fable about the grasshopper and the ant: the grasshopper who spends his pre-winter months lounging in the sun, throwing back Tecates and enjoying the sun on his tiny, green face as he watches the ant, hard at work, collecting crumbs of food for the frigid season ahead.

As winter rolls around and snow blankets the outside world, the grasshopper, who had been enjoying his life living in the moment, realizes that food has become impossible to find. Unable to feed himself, the grasshopper dies. And the ant? He spends the winter lounging on his LoveSac and binging on Netflix (presumably), surviving and thriving on the feast he proactively prepared for and collected during those warmer months.

What do the grasshopper and the ant have to do with how you run your business? Everything- especially if you’re the grasshopper.

Successful businesses requires proactive cash flow

The difference between a successful business and a struggling one is that successful companies are proactive when it comes to their cash flow. In fact, 2 of the top 5 reasons small businesses fail is because they either experience cash flow problems or they run out of cash.

While cash flow may sound like a fundamental concept, many business owners continue winging it week after week. Taking a laissez-faire approach to your cash flow is like planning a wedding without taking a headcount. How do you know how much food to order or what size venue to book? Do you have enough money to cover that open bar?

Starting off every Monday morning worrying about what you need to do that week in order to make payroll is not ideal and is a bad idea. Think about this: if your business was going to be short on cash, would you rather know a month before your bills are due or the week that your bills are due? Consistently being proactive and analyzing cash flow statements eliminates stress and anxiety and allows a business owner to stay on top of accounts.

A company’s performance is tied to its cash flow: if you have no insight into how much cash is flowing in and out of the business, how do you know if you should pop that bottle of Dom or are standing on the stern of the Titanic? Proactive cash flow management ensures your business forecasts the timing of when cash is to paid and received and reduces the risk of running out of cash.

Becoming proactive with cash flow:

Being proactive in your cash flow helps you plan for the future rather than having to continuously be reactive week over week. Business owners with proactive cash flow management can see 4, 8, or 13 weeks out into the future. If there are any periods where cash may be short, they will have the visibility, and more importantly, time to plan for it.

Taking a proactive approach to your cash flow starts with knowing what the major expense components of your business are including payroll and benefits, R&D, marketing, COGS, and G&A (general and administrative) expenses. Then take a look at your bank balance and ask yourself the following questions:

  • How much money is in the bank?
  • Are there any outstanding checks that haven’t cleared?
  • Is there any cash that is forecast to come in over the next week (are there any ARs being collected)?
  • How much in AP (accounts payable) is due in the next week?

If your ending cash balance is negative, you’re out of money.

Understanding your cash flow is critical to your business. With a forecasting tool in place, you can help your business plan for future growth, understand the ebbs and flows of your business cycle, and understand how long current cash reserves can last.Signature Analytics will help guide your company through the cash flow process. If your business need assistance creating, improving, or managing your cash flow, contact us today.

It seems like Q4 flew by! Isn’t it like that every year, though? Now the glitter on the floor from New Year’s has been cleaned up, and the fancy champagne glasses are away. Those items you swore you’d get to before the year was out are still left unchecked on your to-do list, and your business budget is no exception.

You thought you had plenty of time to build, examine, and implement a solid plan of business resolutions to kick-off the new year, but the celebrations came and went, and the work didn’t get done.

You now have two choices. Say “oh well” and hope Q4 this year is more efficient. Or, kick it into high gear, inspire your team, focus them, and roll up your sleeves to get to work. (If you’re wondering, we are urging scenario two in this case.)

Creating a plan to organize your business objectives is essential to the growth of your company. While it may take a few days or even weeks to tackle, you shouldn’t wait to put those goals into action.

Below are seven goals to get you started just in time for February:

1. First Set Your Budget, Then Lower It

Take a look at the budget you created in the last year with your team. Now is the time to review it and see if the budget in place was realistic and in aligns with your business objectives. Building and setting a budget requires determining revenue earned from all streams, fixed costs, variable costs, and any one-time payments that may be coming up.

Once a budget is set, look for ways to cut costs or expenses. This process can include paying invoices early (many vendors will offer discounts to reliable clients/customers) or negotiating lower prices with vendors. Lowering payroll will also cut expenses. Try hiring interns or outsourcing in areas where you may not currently need seasoned or full-time professionals. Find a budgeting technique that best fits your business.

Free Download: Discover how outsourced accounting can provide more visibility into your business

2. Better Manage Your Cash Flow And Financial Records

“Making more money will not solve your problems if cash flow management is your problem.” -Robert Kiyosaki

The last thought that should ever cross your mind is: “what happened to my money?” Does your business have a cash flow forecast created? Are you tracking your performance against the forecast?

Since cash flow is the lifeblood of the company, monitoring it is critical. Whether for future endeavors and purchases or if you know you will need to start looking for financing options soon, you want to be able to see what cash available. If you aren’t considering different scenarios for the forecast, it’s time to start before it’s too late.

3. Plan And Prepare For The Future

Can you predict the future? Unless you have psychic powers, you will likely need to rely on other means to understand how to plan for the future. While predictive analytics can be a relatively inaccurate source of information, financial metrics tracking past performance (and are relative to your business) can be used to prepare for future expenses. Past expenses can also be used to create a forecast/budget. A budget could also include any new costs the business is expecting to take on or account for increases at any expense.

Read more: Planning For What If’s 

4. Make A Plan To Reduce Debt

While some debt is suitable for a business, more often than not, it can cripple, and even bankrupt, a company. Businesses accrue debt in countless ways. It could be due to expanding too quickly, financing new projects too early, or even something as simple as being unaware of company spending habits.

Creating a plan is an excellent way to reduce, and ultimately, eliminate debt. A debt-reduction plan could include actions such as cutting expenses, speeding up collections, or contacting creditors to consolidate or renegotiate the debt. A business should also pay off high-interest debt first.

No matter what’s on the plan, the end goal is universal- creating strategies that can be implemented long term and eradicate bad debt.

5. Do Your Taxes Throughout The Year

Making quarterly tax payments isn’t for every business, but could be beneficial, especially if you’re focused on your statement of cash flows. Making quarterly tax payments spreads out cash payments instead of taking what feels like a big hit all at once. Contact your tax CPA to find out whether paying quarterly fees will be beneficial to your business. Don’t have a good CPA, contact us for a referral.

Free Download: Discover how outsourced accounting can provide more visibility into your business

6. Save For A Rainy Day

“All days are not the same. Save for a rainy day. When you don’t work, savings will work for you.” -M.K. Soni

The American market has historically turned volatile on a dime, every company, regardless of size or revenue, should have access to a cash supply in the event of an emergency. Cash flow forecasting and management can also help prepare your business for a rainy day. Planning and monitoring cash inflow and outflow will help you see your expenses and what you can cut, yet still operate, while slowing down cash burn.

Read more: Importance Of Cash Flow Management

7. Stick To The Plan

With a defined roadmap in place, the final step is consistency. Without consistency, there is more room for ambiguity, which can create a chain reaction of inefficiencies throughout the business. These inefficiencies may affect operations and employees or spread to clients and customers.

Establishing and maintaining consistent policies can improve the organization with the company, employee turnover, and customer retention. Strategies like this can also help to reduce churn and aid in the growth and expansion of your business.

It is easy to go down a rabbit hole, and before you know it, the end of the year is here, and the work we wanted to get done got put on the backburner. We encourage you to take control of your finances as quickly as you can so you can be more organized and effective in the new year.

Signature Analytics can work with your team to create a budget for your business and monitor that budget throughout the year. If you need assistance building or improving, a plan to organize your finances and grow your business, contact us today for a free consultation.

Discover how outsourced accounting can provide more visibility into your business

With a two-year old in the house, the word “Dada” is often heard from the waking hours to reading Jimmy Fallen’s book before bed. Recently, I heard on a podcast the word used as an acronym for Data, Analysis, Decision, Actions, and how useful such process can be for entrepreneurs and executives while operating their business.

The following will go through each process and common pitfalls of these items with a focus on accounting and finance along with explanations on how critical each is to the next.


Gathering information from the activities of a business is critical to any operations. Too often we see entrepreneurs using sales orders from their business development team or the amount of cash in the bank to evaluate the health of their business. However, there is more information to be considered including the complete cost of products or services sold, uncollected sales, general overhead expenses, warranty claims, obsolete inventory, and many others.

The remaining steps of the DADA process include ensuring the ability to obtain complete and accurate data from either your accounting system or other systems used. The phrase “garbage in – garbage out” is very appropriate to this step. It is important to ensure that your accounting and finance team have the technology and processes in place to enter the necessary information and produce usable reports. Some questions to ask yourself:

Am I receiving reports on a timely basis or do I have to wait over a month before seeing results of my operations?

The monthly close process should be no longer than 20 days following the previous month end. If the close process is longer than this, it may be due to a lack of appropriate processes or opportunities to introduce technology to accelerate the timing.

Am I often hearing that certain reports are not able to be prepared or the information is not available?

In today’s age there is a plethora of technology available to manage data to produce necessary reports. You may need to reconsider the technology in place and identify new options. With the vast amounts of technologies out there, it is becoming harder for the accounting and finance teams to understand all of the capabilities. The technology in place may be more capable than you realize.

Am I constantly finding incorrect information in reports?

Incorrect information could arise from a number of potential issues. Poor data entry methods can cause regular errors. For example, does someone enter all cash activity into the accounting system rather than uploading a report directly from the bank? Weak internal controls, including lack of a review process, can be the culprit of inaccurate information provided to executives. Consider whether you have the right number of individuals in the accounting process.

When Signature Analytics engages with a company, one of the first areas we focus on is how the data is entered, the processes in place (or lack thereof), and the reports that may be produced. From this assessment, we can identify suggestions for improvement.


Assuming that you are confident in the data received, the next stage in the process is to analyze the results and identify areas of concern or positive trends impacting the business. While a balance sheet and income statement are good starts to this process, there are other metric-based reports which should be utilized. Below are several examples of key performance indicators to consider:

Gross margin trending by product line/department
Having a strong grasp on the margins of your product or service can help identify when your pricing needs to be adjusted, potential bottlenecks in the process, or if suppliers’ cost adjustments are impacting your profitability.

Break even report
Knowing exactly what you need to sell each month to break even from a net income perspective can help business owners make critical decisions on sales team commission plans, adding additional headcount, approving larger purchases, amongst others.

Days sales outstanding trending
While sales get the business excited, it’s collecting on those sales that is most critical. Evaluating how long it takes your customers to pay, and whether that time period is extending or contracting over time, can help identify future cash flow issues.

Cash conversion cycle
From the day you send payment to suppliers for inventory to the day you ultimately collect from your customers for selling that same piece of inventory, do you know how long it takes? Many businesses do not consider this analysis and are surprised when they learn it takes 6 months to get their cash back. This could be an indicator of poor inventory management, a lack of focus on collections, or a need to review terms with customers and suppliers.

Analysis should be performed on a consistent monthly basis and discussed with the accounting/finance team as well as the operations team. Occasionally we see that analysis meetings focus on exceptions or “one-time” activities in the data. The team should first determine if these are exceptions or if there is an underlying issue in the operations. If they are exceptions, then this data should be excluded from the analysis so that a true picture of the results of operations can be reviewed.


The main purpose of the analysis process is to make decisions about the business. Identifying that the company is experiencing collections issues is important, but there needs to be decisions agreed upon to help improve the situation. Decisions by the team should contain enough detail so that the operations team can clearly understand any changes which need to be implemented. Prior to finalizing decisions, the team may need to go back to the Data stage and obtain additional information to confirm that it is the best course of action. Once a decision is agreed upon, it should be treated similarly to how goals are developed using the SMART acronym; specific, measurable, achievable, relevant, and time-based. This can provide the greatest chance of success and help move the business in the right direction as quickly as possible.


The Data, Analysis, and Decision steps can be an exhausting process and once those processes are completed, everyone may feel enthusiastic about the new direction and conclusions. However, the process isn’t complete.

Decisions on their own do not trigger change within a business; it requires action throughout the organization to create impact. Action plans should be communicated to those affected by the decision along with support for each decision. When team members believe change is occurring solely for the sake of change, they are much less receptive than when they understand the issue. It’s important to set clear expectations for teams to follow, as well as an understanding that members will be held accountable for implementing such actions.

The results of these actions should be evaluated each month to measure progress. This evaluation involves going through the Data and Analysis process again. If more decisions need to be made, then that is the time to do so. One common pitfall we see with businesses is that they go through the process to develop an action plan, then are focused on something different the next month, disrupting progress. Make sure that your monthly agenda discussions include updates on previous decisions made.

Going through the DADA process consistently with your accounting and finance team is a critical part of the monthly close process. If you aren’t currently implementing the DADA process to operate your business, it is time to consider whether you have roadblocks preventing the process.

At Signature Analytics, our team has helped companies improve their overall processes, improving insight into the operations and resulting in necessary changes to allow for growth and success. How would fractional leadership help your growing business?


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Do you understand the cash flow of your business? Signature Analytics’ Founder and President, Jason Kruger, tells you what you should know on BISTalk Radio.

“A lot of our clients are entrepreneurs.” -Jason Kruger with Bob Ryan, host of BISTalk Radio on ESPN, October 4, 2017

Listen here:


StartupNation features Signature Analytics’ article on how to approach startup cash flow downturn. The article covers the following:

  • How to stabilize the company’s cash flow
  • The difference between “cash flow positive” and profitable
  • How to get invoices paid faster
  • Alternative revenue sources

Read the full article on StartupNation.

One of the biggest obstacles in business is predicting cash flow and influencing the future of your company. Business owners may become paralyzed when they review their financials. Understanding your numbers will help you be proactive about your company’s future and confident in the decisions you make. Let’s take a look at some common questions business owners may have regarding their financials and learn the top ways to unleash the power of your financials!

Is there a better way to manage cash flow?

Trying to run a business without cash flow management is like trying to paddle a boat without an oar. Even if you succeed, it will be an upstream exercise guaranteed to wear you out. The three key elements of your cash flow analysis include:

  1. Accounts receivable: What customers and clients owe you.
  2. Accounts payable: What you owe your vendors.
  3. Shortfalls: (You hope not to have these, but they do happen.) Determine your break-even sales and use your breakeven point as a benchmark.

You must effectively manage all three if you want to navigate your business to success. Of course, the best direction to paddle a canoe is with the current. You’ll go faster and won’t wear yourself out. By the same token, your business will be healthier if you manage your cash flow toward the profit line.

Are my products and services profitable?

One important number that business owners tend to overlook is their Gross Profit (GP) Margin. The gross profit margin is your sales, minus cost of goods sold. The amount remaining is the profit on sales, after the costs directly related to the sale of the service or item are deducted. Some notes about gross profit margin:

  • The greater the GP margin the more profitable the company is before fixed costs (overhead)
  • Helps the business owner to determine if they are pricing their services correctly and controlling their cost of goods sold (labor and materials)
  • Increasing sales does not always improve cash flow
  • Set a GP margin target and monitor your results each month — track your GP margin over time to ensure it does not deteriorate and lead to cash flow problems — being proactive and not reactive
  • GP margin helps the owner to determine their break-even sales by dividing the total overhead expenses by their GP %

How do I know how my business is performing?

Have you ever heard the adage “Garbage in, garbage out”? Well, it is true! In order to have confidence in your financials, you have to make sure you have captured all of your revenue and all of your expenses in order to see the full story. One way you do this is reconciling your cash and liabilities.

Reviewing your bank balance online DOES NOT give you a full and accurate picture of your financials! If you are using your bank balance to determine your cash flow you will run into complications. Your bank balance does not include activity that has not cleared. Reconciling your cash on a daily basis is extremely powerful. If you are reconciling all of your accounts on a daily basis, you will have a better handle on your key metrics. Think about the power of daily reconciliation for a minute. If everything is updated every day, that means you have real-time access to all of your key metrics. If you knew your real cash balance daily, instead of just your bank balance, would that be valuable?

As important as it is to know your cash balance, it is equally important to have an accurate budget. I call it  “creating a financial road map.” It is important to predict the future of your company. Big decisions are difficult to make, and once you commit to a decision it is difficult to change course.

One of the most important year-end tasks for most businesses is to work on next year’s budget. Often though, this process is misunderstood. It is not only a financial exercise for the future, but also a way for a business to evaluate their prior performance. As the year draws to a close it is important to take a look at how far you have come and what you have learned along the way. It is important to review your accomplishments. You should celebrate the areas in which you improved and review how they impacted your business. Doing this will help your determine your goals and set your path…however in order to evaluate your performance you must understand the story behind your financials.

How can my business financials help me make better decisions?

Have you heard the expression “Numbers don’t lie?”  It’s true, they tell your story — don’t be afraid to pay attention. Knowledge is power. In order to know your cash flow you have to know your numbers. Before you can determine your current financial position and set realistic goals you must understand your current financial situation. You also need tools to help track your progress. Timely and accurate financials are the first step to gaining control. They help you to identify potential pitfalls and help you to make educated and informed decisions. Financials also help you to set goals so that you can project your cash flow, allowing you to be proactive with your finances rather than only reacting to what already took place.

It is important to understand the numbers behind your business. They tell you a story. They show trends and performance. They can help you to make proactive decisions for the future, instead of reacting to the past.

What financials are important and how do they apply to my business?

Reading your financials and accounting reports is like reading a novel…every chapter tells a part of the story! It is important to not only review your financials but you also need to know how to read them. How does your company stack up against competitors? How has your revenue and expenses changed over time? Ways to review your financials include:

  1. Profit & Loss Summary Prior Year Comparison: Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing — as well as how fast expenses are rising.
  2. Balance Sheet Prior Year and Prior Month Comparison: As with your income statement, it’s important to compare where certain balances stand now versus last year: Cash, Accounts Receivable, Inventory, Accounts Payable, Other Liabilities, such as lines of credit or short-term loans and review the changes.
  3. Budget to Actual: Great report to track your progress by comparing your actuals versus what you budgeted. It helps you to manage your cash month to month.
  4. Statement of Cash Flows: The Profit & Loss reports enable you to see what you earned, while Balance Sheet report helps you determine what you have — as well as what you owe. However, neither report necessarily provides a clear picture of where cash is coming from, or going to. For that, you should look to the Statement of Cash Flows report. This report allows you to see:
    1. How much cash you’ve taken in from sales and spent on expenses
    2. Cash inflows or outflows from borrowing, repayment, or investing activities. In short, this report shows you exactly what caused your bank balance to increase or decrease during a given report period.
  5. Profit by Customer and Product: What are your revenue generators and what do you need to more closely track?

We Can Help

Accounting is known as the language of business. Understanding your financials unleashes the power to make better decisions and drive your business towards success. Contact Signature Analytics to schedule a free business process review and learn how we can assist with your financial analysis and outsourced accounting solutions!  

Inc.com mentions Signature Analytics in an article about ways to better manage cash flow! The article covers 7 tips to better manage cash flow, including:
  • Evaluation
  • Tightening up net terms
  • Automatic payments
  • Best terms
  • Reserve cash
  • Require deposits
  • Develop Key Performance Indicators (KPIs)
Read the full 7 Expert Ways to Better Manage Cash Flow article on Inc.com!

Hint: And get the answers…

We have said it before, and we will repeat it, having an annual budget for your company is like having a map on a road trip. Without one, you will be lost and taken down paths that won’t help you reach your destination or goal.

The process of creating a budget must begin somewhere. You cannot merely build an important document like this without understanding some key elements of your company and its financials.

In this article, we are going to review some of the top questions that you should be asking your accounting team or financial advisor before building out your business budget.

These are the kinds of questions that will help to understand revenue, expenses, future projections, where you can cut back, and more. Having all of these details will help to discern the financial ins-and-outs of your business better.

These are the top budget questions to ask throughout this process.

What Is Our Current Operating Plan?

One of the most crucial questions you can ask at the beginning of this process is what is our current operating plan and what is the breakdown of our monthly expenses. (If you don’t yet have an operating plan, there is no better time to create one then right now.)

Identify all of your monthly operational costs, as well as the costs that repeat quarterly or yearly. Once you have it all organized, you can obtain reports from your accounting system, total the expenses to determine the final numbers.

Not sure what should be included in your operating expenses? Think of rent, utilities, employee costs, office supplies, equipment, etc.
Does gathering all of this information sound like too much effort? You can always contact our team to help you get an accurate number and keep track of your operational expenses month-to-month.

The details within the operating plan should also help outline the vision for the year, set goals, and determine KPIs. If you need to raise capital, bring in new investors, or hire new managers, this will all be items to take into consideration when formulating your operating plan.

Read More: 8 Things to Consider When Planning An Annual Budget for your Business

What Revenue Is Expected For The Coming Year?

To be able to put this operating plan in motion or have it continue on course, you will need money (this isn’t rocket science). Therefore, it will be important to determine a dollar value for each line item in your operating plan.

Where are you going to get the money to cover these planned expenses, or where is it currently coming from? Does your revenue bring in enough money to cover these costs, or are you short and relying on company credit cards to cover the rest? Do you need to land new accounts or gain new customers? How much more revenue do you need to hit all of the goals you have for the coming year?

Determining cash on hand is a crucial part of this process as it will set the bar for where you are at compared to where you would like your company to be. Once you have your number for expected revenue for the year, your budget can be based on these numbers.

Read More: Managing Your Revenue Cycle: 6 Accounts Receivable Best Practices

What Does Company Cash Flow Look Like?

If your company reports yearly earnings of $5 million, how likely is it that $5 million is sitting in your company bank account? The answer is slim to none. Financial statements that offer this kind of reporting will always include non-cash items, which is why it is critical to understand company cash flow.

When your company pays employees, pays utilities, pays vendors, or makes other payments, this is considered an outflow of cash (the cash is leaving your company). When your company received payments from customers, investors, settlements, or accepts other kinds of money, this is called an inflow of cash (cash is being brought into the company).

Never do you want your company’s outflow of cash to be larger than the inflow. Once you create your annual business budget, you can break it down even more into months or weeks to help ensure payments can always be made while keeping your company still in positive health.

Read More: 10 Tips to Help Improve Your Company’s Cash Flow

What Upcoming Projects May Impact Our Financials?

At this point, you have the majority of your costs documented, but here is where you can take this process one step further. Making predictions based on company expansion plans can help you better plan for your company’s financial future.

    • Consider any plans that may have been put in motion, such as:
    • Moving to a larger (more expensive) office space
    • Investing in a new piece of equipment
    • A significant expense of upcoming travel

These expenses can be anything beyond the typical day-to-day or monthly planned expenses. Taking these into account will help you to ensure your business will be kept running smoothly and no costs sneak up on you.

Beyond the next few months, take into consideration big plans for the next three years. Determine if your company can feasibly save some revenue from this year and roll it into savings for the year or two after that. If you are able to create some financial buffer, it will only help the future of your business.

Where Can My Company Spend More Money?

Wait…what? Spend more money? Yes, you read that right. Here’s the good news: If your company is financially healthy, you can start looking for opportunities to spread that money around.

For every company, this will look different. Maybe it means you can hire a new employee to help with your marketing department. Or, perhaps you need a new contractor to help build a new company website or mobile app. If you are able to, consider what these opportunities might be and how they can be implemented to help carry your business to the next level.

Where Can Expenses Get Cut?

As you are carefully reviewing all of the company numbers, you might find your business is not as healthy as you’d hoped. Or, you might be delighted with the numbers, but want to start creating more of a financial buffer mentioned earlier.

If you are looking for opportunities to cut down on expenses, keep in mind that no savings are too small. If you saw a quarter on the ground, would you pick it up? If you picked up a quarter every day for a year, you’d have a little over $90 in savings.

While finding a quarter every day might be unrealistic, you can take another look at your bills, rental space agreement, vendors, and more. Can you get a discount, cut back on certain software programs that aren’t being used, or get cash back for paying for expenses upfront rather than month to month? Taking a creative look at ways to cut back can total to more savings by the end of the year.

Once you are able to sit down and get a handle on all of these numbers, you will be well on your way towards creating an accurate annual budget. This document is crucial for all businesses and can help to create a framework that will be reliable for making financial decisions on in the coming months and year.

If there is any part of this process that seems confusing or that you think you would like help with creating, please know that the team we have at Signature Analytics is ready to help you and your company. Our financial experts can act as a second pair of eyes to look through your financials and ensure there was nothing critical missed throughout the process. Or they can start from the very beginning by gathering the documents and statements needed to build the annual budget. Please contact us today to speak with someone from our team.

VentureBreak features Signature Analytics’ article on rolling forecasting for your business! The article covers various aspects of forecasting, including:
  • Benefits of rolling forecasting and what it means for business budgeting.
  • Comparison of rolling forecasting and traditional forecasting, to see what option is best for your business.
  • An example of rolling forecasting implementation.

Read the full article on VentureBreak!

The old adage “cash is king” rings true as much today as it ever has in this fluid business climate.  However, as a business owner, you have a choice – manage your cash or it will manage you. It is crucial to regularly review cash balances and cash flow, most often even more so than the P&L. A P&L can show great year-over-year profit growth, but cash will tell the underlying truth about how sustainable a business really is. By being proactive, truly managing cash will relieve strain on the business and allow for future growth.

#1 Growth Requires Cash

Growth is one of the most common goals of businesses, but it is not without risk. And, it can require a lot of cash. Whatever you think you need in cash, it is likely you may need 50% or even 100% more. For a manufacturer or other B2B company, growth may mean bringing on larger customers, which can be a big boost to revenue. What is not always planned for, however, is the impact of these new customers on your cash conversion cycle. Most likely, that new customer will dictate the terms on which they pay you. That can quickly erode available cash to a business. International growth can have the same effect. Despite the increasing pace at which the world moves, conducting business internationally can mean increased lead time with suppliers and longer delivery times to customers, again stretching the cash conversion cycle.  

Maybe growth means an acquisition. Do you have the dry powder to get the deal you want? The days of aggressive bank financing are over, so any deal will require cash in some form or another. And with cash, if you play your cards right, you may just get that acquisition on sale.

What does growth mean in terms of your infrastructure? Do you need to hire more, purchase more equipment, and add office space? What is the cash impact of these changes?  

#2 Bank Financing – Ask Before You Need It

The worst time to seek bank financing is when you have no other options. Like any deal, you want to approach your bank from a position of strength. That removes risk for them and enables you to achieve much better terms. A good banker exists to help your business, but they can only do so by ensuring they are taking on a manageable risk. Banks love when customers can present them with a plan, and have the ability to look into the future of their business. Carefully evaluating the cash requirements for the business in the next 6, 12, 18 months or more enables you to ask for the right deal and likely ensure adequate liquidity to support that future.  

#3 Seasonality – Plan for the Ups and Downs

Many businesses are seasonal. However, most of those same businesses don’t treat their cash accordingly. Don’t get caught in the trap of celebrating a big month or quarter thinking the business has turned a new page and burn too much cash in the near term. If in retail and Q1 is traditionally slow, stock cash away even after that big holiday season. If the success continues, you will be left with too much cash. Is that really a bad thing?

#4 Reserve for Big Outflows

Depending on how predictable cash flow is, for many businesses, large outflows can cause major cash challenges. This can apply to once-a-year expenses, once-a-quarter expenses, capital expenditures, or even payroll weeks. To combat a cash crunch due to timing, you should reserve cash during normal periods or times of surplus. For example, for an annual expense like an insurance premium, reserve a monthly amount so by the time the renewal hits, the cash is available. For very fluid cash flow businesses, the same thing can be done for payroll, reserving amounts of cash in off-payroll weeks. Another best practice is to do check runs for AP in alternating weeks from payroll. For companies with borrowing base lines of credit, a big A/R collection can put you flush with cash, but it also means your borrowing capacity on your line likely dropped, and you may have to write a check back to the bank.

#5 You Get What You Pay For

The lowest cost option is rarely the best option. If buying equipment, have you planned for maintenance costs, which often increase with lower quality? On another front, the lowest cost options for commercial insurance may be a good fit for your business, but in all likelihood, it also means you are exposed to certain business risks. Insurance policies should be reviewed carefully in any situation, but if saving money on premiums, does that mean higher deductibles? Or even carve-outs in coverage altogether? If you removed flood damage coverage from your building policy to drop your premiums by $10,000 per year, that could leave you writing a big check should disaster strike. That may still be a good business decision, but plan for the potential risk and have a little extra cash on hand.

We Can Help

Cash is your most versatile asset. Don’t let cash management become a liability. Signature Analytics can help your business avoid potential pitfalls of cash management. We provide the ongoing accounting support and financial analysis necessary to more effectively run your company, analyze operations, and guide business decisions. Contact us today to learn more or set up a free consultation!

It’s simple… run out of cash and your business fails. That is why good cash flow management is so imperative to the success of your company.

A common source of cash flow problems (especially for small and mid-size businesses) is poorly managed accounts receivable. The more cash you have tied up in receivables due to slow paying customers and delinquent accounts, the less cash you have available for running your business.

Furthermore, mismanaged revenue cycle accounting (e.g., delayed invoicing or failure to invoice the customer at all) will lead to cash flow disruption. This issue is typically compounded by incurring internal labor costs or external vendor fees for providing products or services to customers without having cash inflow to offset such costs.

Accounts Receivable Best Practices

What can you do to ensure your revenue cycle is properly managed by your accounting team and cash inflows are maximized? For starters, follow these six accounting best practices for revenue cycle management:

#1 Provide Customers With an Estimate or Quote

Create an estimate that includes the specific products or services being sold, sales price, credit terms, etc. This will allow your customers to have an understanding of the required costs in advance, avoiding surprises when the invoice arrives and resulting in quicker approval.

#2 Confirm Invoices are Sent for Completed Sales Orders

Create a sales order from the approved estimate or from the customer’s purchase order. Management should review the Open Sales Order report to ensure visibility to services that have been provided or products that have been shipped for which no invoice has been prepared.

#3 Review Accounts Receivables Regularly

Proactively manage the receivable collections process immediately upon invoicing. Management should review the Receivable Aging report weekly to create accountability for the person responsible for collections. It is also important to establish a plan for following up with all delinquent, or almost delinquent, invoices.

#4 Offer a Variety of Payment Methods

Providing customers with the option to pay via ACH (automated clearing house) and credit cards can shorten the length of time from invoicing to customer payment compared to signing and mailing a physical check. In today’s world, electronic payments can be made from a mobile phone or device, making it even easier to approve payments.

#5 Input Customer Payments Immediately

Payments from customers should immediately be applied in the accounting records to the specific invoice. This process ensures that management has an up-to-date and accurate Receivable Aging report to review.

#6 Forecast Recurring Revenue

Businesses with customers who are charged monthly, quarterly, or annually for services should establish additional accounting procedures to forecast and schedule the future invoicing. Forecasting allows you to compare invoicing for these recurring charges against expectations to determine if there was a failure to issue invoices to any customers. If charges are identical each month, consider automating the process so that invoices are sent on the same day each month to avoid any unexpected delays.

We Can Help

Signature Analytics can assist your business with implementing these revenue cycle accounting procedures and accounts receivable best practices to help you improve cash flow and strengthen the bottom line. Contact us today for a free consultation.

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Where to invest a company’s finite resources is one of the most important decisions faced by business owners—and where they spend a significant amount of time. When companies have poor visibility of financial information, it undermines management’s ability to make informed decisions on where to invest money and where to cut spending.

Choosing Where to Invest

Successful investment management strategies rest on the anchor of good financial information. It is critical that decision makers have accurate and reliable financial information (historical and projected) on the performance of various departments, product lines, services, etc. Only with this visibility can decision makers be provided with clear choices which enable them to make strategic decisions about which areas should get more resources and which areas should receive less based on dispassionate hard facts.

Cost Cutting vs. Cost Control

The best cost cutting strategy is to have robust cost control in place from the beginning, making a cost cutting strategy superfluous. But let’s face it, even the best run businesses run into snags and bumps which require a cost cutting program at some point.

Across the board cost cutting (e.g., mandating each department, business unit, product line, etc. cut 10% of all costs) is never the right approach. Rather–similar to determining where to invest–when deciding where to cut costs you ideally want to have 100% visibility of direct spend (e.g, raw materials) and indirect spend (e.g., rent and utilities) across the entire business and the ability to allocate that spend to the various products, services, or strategic priorities they relate to.

It should be said though, cost cutting is not an end game. Without a good cost control program, cost cutting will be a futile exercise as any gains made will eventually reverse as cost creep back into the business.

The Budget

The budget, when used correctly, is the single best tool for managing your investment plan and controlling costs. It is important that the budget is based on reality and that there is a clear understanding of which line items are impacted by various actions the company intends to take.

It’s also important to manage the budget by individual line item, not by department, unit, or other overall totals. This is because timing differences in the accounting for various transactions can give the appearance of favorable variances, offsetting other over-budget line items; however, when those timing differences catch up to you, it may be too late to take corrective action, or at a minimum, you are months behind.

The Role of Accounting

Accounting plays a central role in bringing transparency and visibility to key financial information and in supporting budget performance analysis. The bottom line is that having accurate, reliable and appropriate financial information is essential if you want to make the best strategic decisions for your business.

Improve Decision Making Through Visibility of Financial Information

At Signature Analytics, we work with our clients’ management teams to ensure they have the financial information they need to make the best decisions for their company. This is accomplished by producing a detailed understanding of the cost structure of the business, as well as the key performance indicators associated with each product line and revenue stream of the company. This analysis is then used to improve budgeting and develop a robust cost control program.

We can also provide accurate forecasts and budgets that enable our clients to properly manage costs on an ongoing basis and improve cash management strategies. All of these accounting and financial reports empower our clients with the financial information they need to make smarter decisions based on dispassionate financial analysis.

Want to learn more about all the ways Signature Analytics can help improve your decision making through visibility of financial information? Contact us for a free consultation.

Signature Analytics was engaged by a rapidly growing San Diego brewery which, at the time, did not have an internal accounting function. The brewery’s management team spent the majority of their time on the operations of the business, so it was not possible to make maintaining proper account records a priority; however, they recognized that it was critical to have accurate financial information to make proper business decisions. So they reached out to Signature Analytics to provide outsourced accounting services.

Within a one month period, the Signature Analytics team was able to update all of the accounting records for the previous months which had been neglected. Our accounting team also set up a monthly close process which included proper reconciliation of all bank and balance sheet accounts, the implementation of a system to track inventory, and ensured proper Generally Accepted Accounting Principles (GAAP) and accrual basis of accounting. Additionally, we established monthly meetings with brewery management to review historical performance and discuss future activity and projections. Communications with the Brewery’s management were ongoing and imperative, allowing the engagement to maintain flexibility and drive effectiveness.

While these procedures were exactly what the management team expected of Signature Analytics, we knew there was more that we could do to assist with the most crucial business decisions. During the month that the accounting information was updated and while we learned about the business, the Signature Analytics team noted that more focus should be placed on the gross profit margins of the brewery’s products. Once the data was properly structured and accurate, a seasoned CFO put together a custom margin analysis and was able to identify several opportunities for improvement. The insights from this analysis enabled the Brewery to properly evaluate profits and increase margins.

In addition to getting the Brewery’s accounting records in order and providing a custom margin analysis, the Signature Analytics team prepared a 13-week cash flow forecast to assist with cash management and the payment of bills. This analysis helped the management team better understand each of the inflows and outflows the Brewery experienced and identify areas where they could improve the business financially.

Although we were initially engaged to only provide monthly accounting maintenance and bookkeeping services, the Brewery’s management team quickly recognized the value of Signature Analytics’ proactive approach to outsourced accounting services. Having a full accounting team on an as-needed basis was a perfect fit for the Brewery’s needs and the additional financial analysis and reports we provided allowed the Management team to get a better understanding of their business. This enabled them to confidently make business decisions based on the accurate financial information they were provided, ultimately improving profitability for the Brewery.

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