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My P&L shows I made a profit last year and I’m on track again this year… My question is… can I take it to Publix for groceries? (asking for a friend) If you’re P&L looks good, but your bank account balance is tight at the end of the week after you make payroll and pay your bills… You’re not alone. That’s all too common for small and mid-market companies. Many small business owners ask me why?... What’s the disconnect between my accounting reports and my money? Fair question. The answer is time. Yes, your P&L is reporting on a date range but most of the time, that date range is rather broad such as “This Quarter” or “This Year to Date”, etc. In fact, it’s super rare to find a [accrual based] P&L that is reporting accurately if the date range is one month or less because it’s usually not kept up to date and reconciled quickly enough in most busy bookkeeping departments. So, the problem is, broad based date ranges don’t reflect the “real time” movement of money in and out of your bank account(s) daily or weekly within the date range of the report and knowing how much money is going to be in the bank at least weekly is critical if you are going to have a chance of being on top of your income, your bills and your business in general. Additionally, if you have a fleet of vehicles, either on bank notes or leased, those monthly payments are most likely NOT coming out of your P&L because those payments are considered “Balance Sheet” items because they impact your assets and liabilities. But they do represent real cash coming out of your account every month! Likewise, simply checking your bank balance (even the balance reporting in QuickBooks®) isn’t good enough either because your bank balance a “snap shot”… just a fleeting moment in time that will probably change before you finish your lunch from Chic-fil-A today. So it doesn’t take into consideration that you have payroll in 2 days and about 8 vendor invoices coming due this week. So… how can you get an accurate idea of how much you can pay out for payroll and payables this week and still have cash will be in the bank at 5pm on Friday without going through an annoying and tedious 45 minute exercise with your bookkeeper to look (again) at “what’s coming in this week and what invoices do we have to pay”? That gets pretty old doesn’t it…? Here’s how. You have your accountant set up a “Cash Forecasting System”. Just a simple excel spreadsheet that your bookkeeper can keep updated with just a few minutes per week of effort that will give you a pretty good idea of how much money will be left in the bank at the end of the week… and at the end of the next several weeks! Once you do that, you will wonder how you ever got along without it because not only will it save you a ton of time and guess work, it will tell you when you’re going to be tight on cash, usually with several weeks’ notice… which is a whole lot better than getting punched in the nose at 3pm on a Friday afternoon. So, if you want to gain that type of control over your finances and get rid of a whole bunch of stress… go ahead and close Linkedin and give your CPA a call and ask them to set you up a Cash-Flow Forecast system.. Your life will never be the same… Promise! S.E.P. Sample Cash Management Tool: 
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You do whatever you have to do to get every last molecule of that stuff out, don’t you? You may even put it on the counter so you can push down on it with both hands. I’ve seen people use the bathroom door to squeeze some of that mint flavored sugar infused paste onto a toothbrush.
So, what can that tell me about running my business you may ask… A lot. When the tube is full, you’re not thinking about how inefficient you’re being and you’re definitely not thinking about what it’s going to cost to buy a new one. But when it’s almost empty, you suddenly become the Ebeneezer Scrooge of personal hygiene. Why is that? Because, while we should strive to be efficient with all of our resources at all times, human nature doesn’t work like that. But introduce lack into a scenario and suddenly we become expert Lean, Six Sigma Kaizen practitioners like we have a Ph. D. in business from MIT. Ok, so how do we apply this to running a business? I suggest starting with your daily operating (checking) account. Most small business owners put everything that comes in… into that account. Then they (or their bookkeeping team) pay bills, make payroll and purchase the necessary supplies or materials needed to run the business. So what’s wrong with that you may ask… The problem is, when the account balance is flush, we all tend to take our eye off the ball (financially speaking) just a little. Like we do when we have a full tube of toothpaste. That breeds inefficiency and sloppiness with your most important resource… your cash! What we suggest is, estimate how much of every dollar that comes into your business will be profit after all the bills and payroll (including yours) are paid. It may be 10% or 20% or it may be 1% in your case. That’s fine but whatever you think it is, every Monday morning, total up every dollar that came in the week before, pull your estimated profit % out and put it into a different account. Actually, you should put it into 2 different accounts. One account for taxes and one account for profit/savings. Put 1/3 of the amount into the tax account and 2/3 into your profit/savings account. (Don’t worry about running out of money in your operating account… you can always pull some back in if necessary). If you do that, you will be creating a culture across your entire organization that says "we pay attention to efficiency and financial stewardship at all times around here". So next time someone in your organization thinks, “oh, I’ll order a little extra _______ for this project so we don’t have to worry about running out", whether that ______ is $10,000 of construction materials or a case of paper clips from Office Depot, they’ll think twice. (And if they don't... there won’t be "fluff" sitting in your checking account for them to overspend anyway). Additionally, won’t it be nice to tell you CPA next March that you already have the money you need set aside in your tax account for Uncle Sam? And oh yeah, that conversation will happen after you used the majority of the money in your profit/savings account (the money you didn’t let leak out of you business on inefficient spending) for adding to your retirement plan… and a nice vacation with your family! In his time managment masterpiece, "18 Minutes", Peter Bregman totally hits it out of the park with dozens of super doable productivity hacks that WILL improve how you get things done.  Here's an example: At the end of each [working] hour, take a brief moment... just a minute or so to reflect on what you did during the last 60 minutes. It's not easy to remember what we did during a certain time period days or even hours ago but hopefully, we can reflect back on the last hour! This habit will give you a real gut check when it comes to how we use our most valuable posession... our time. And he wrote that long before the greatest time thief ever invented was right at our fingertips... which makes this discipline about a million times more important today.  Here's what I did to help me remember to do this. I took 5 minutes to set an alarm on my phone at 59 minutes past every working hour... (7:59am, 8:59am, etc). I picked out the least disruptive alarm I could find on my phone which is "beep once".
So every hour, when that thing goes off, I intantly take just 1 minute to ask myself... hmm, what am I doing right now and what have I been doing for the last 60 minutes? Admittedly, I don't always like the answer but I think that's the whole point of this exercist... Improving my productivity by holding myself accountable! Give it a shot!
Then you sat down in your office... alone... and asked yourself, "why does this keep happening even when we have so much work?" Sometimes the answer is, "it is what it is" That's the price of growth and being busy... Congrats!
But... Wouldn't it be nice if you could have a little heads up before your bank balance gets to that point... instead of getting kicked in the stomach at 3pm on a Friday...? You can! With a Cash-Flow Forecast. A simple to use spreadsheet that will tell you if your bank balance is going to dip below your "comfort zone" and... it will do that for you weeks in advance... Not days... Not Hours... WEEKS in Advance. Which will give you the luxury of time to make a plan get everyting & everyone paid on your your terms and usually on time... instead of dealing with a 3 alarm, 3pm fire on Friday afternoon. You can ask your CPA for help or find one online pretty easily... Either way, you'll be so glad you did!
It’s done with reports. Nothing fancy, business owners don’t have time for long winded over-complicated reports. All you need are a few easy to scan snapshots to keep your progress aligned with where you want to go. That being said, it’s critical that those reports be more like a windshield than a rear view mirror. Here’s what we mean:
I often see some type of tracking of "sales closed" or "last week's production" reports. And, accounting usually keeps owners up to speed on how much money is (or isn’t) in the bank to make it through the week. That’s good however, these types of reports contain “lagging indicators” or “lagging metrics”; because they tell stories you need to know about what’s happening in your business but only after the story is over… Which begs the question, how can you control what’s going to happen in your business when all you’re able to look at is the past? The answer lies in creating reports that look forward. The data and info in these types of reports are called “leading metrics”. For example, if you’re tracking leads generated and the number of appointments or calls made by your sales team, you can predict future sales (as long as you know the average closing ratio across your sales team). That forward looking information from your sales department can be easily converted into usable data for your operations team affording them the ability to properly control needed staff and manage inventory levels to prevent over-spending among other things. Once you have an idea about what sales (and collections from production performed by your ops peeps) will look like in the future, you can have your accounting department prepare a cash-flow forecast that will predict with accuracy what your bank account will look like well into the future. A good cash-flow forecast will also double a great budgeting tool that can tell you if you can invest [more] money into marketing, or equipment, or people without putting yourself behind the eightball down the road by overspending. So, look at the reports you are receiving from your team and ask yourself, “how much of this info is telling me what’s going to happen as opposed to what’s already happened”? If you find your data is all rear view mirror stuff, get your people together and brainstorm how you can create some “leading metrics”… you’ll be so glad you did.For some tips about how to create more metrics for leading your company to more efficiency, productivity and profitability. |
Ted Frangos is a retired managerial accountant and business analyst who lives in Tampa. After a long career helping small and medium size business owners reach their profitability goals, he decided to hang it up in February 2020 when it became obvious that flying around the country every week wasn’t such a good idea in a global pandemic. He now uses his time to help local business owners navigate their way through the rest of this year as painlessly and profitably as possible. Archives
July 2026
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