When the subject of accounting versus cash flow management comes up, a lot of business owners seem to have a sort of love-hate relationship with their accounting software system. The reason for this, in my opinion, is that they have an unwarranted expectation that their accounting software system is supposed to help them figure out what to do in order to improve the financial condition of their company.
Yet if, or when, they actually sit down and review their financial reports [Profit and Loss statement and Balance Sheet] they can’t figure out how to use what those reports tell them as a roadmap of how to improve their financial condition, and they don’t get any guideposts to keep the company on a profitable track.
The reason for that is any standard accounting software system is actually just a record keeping tool for recording what occurred after money came into a company or a household. It keeps track of how much money came in and where that money was spent; pure mathematics, no thinking involved. Then they wonder what the real purpose of an accounting system is. In other words, why bother?
WHY a company has to have an accounting system is because it produces those financial reports [Profit and Loss statement and Balance Sheet] that are necessary for preparing their company’s TAX RETURNS. UGH!!!
Those financial reports are simply a look back into the past. They tell you how much was made or lost, and how much money is currently owed. While this is important to know, it can put the company or individual in a fear-based position of being controlled by the money – always making financial decisions based only on how much money is left in the bank or how some financial decision is going to affect their tax liability.
What CAN HELP the business owner figure out what they need to do to improve their company’s financial condition is a cash flow management system.
Cash flow management is actively making financial decisions based on the best interest of the company; decisions on what to do to increase the income, and what to do with the income the company makes by looking at today and toward the future. Planning occurs BEFORE the money comes in and BEFORE it is spent. This puts the company or individual in control of the money. When you are controlling the cash flow, then you can control your financial future.
Planning how to get in more income and implementing those plans is essential for every business and every household too. Nothing stays stable for very long. It either goes up or goes down. Income is at the mercy of this natural law. An individual or company has to continue to push income up, while the cost of doing business increases, prices rise and taxes eat away at income growth.
Sometimes it becomes necessary to slash spending to get or remain profitable enough to stash away cash away to have a safety net in case of an emergency, to be able to expand the business to bring in more income, to be prepared to pay unexpected legal expenses if you need the services of an attorney, and to invest in YOUR RETIREMENT plan.
But be careful to make sure you don’t cut expenses in areas where it would reduce your ability to produce income. Careful spending on items that bring more money back in than was spent is the goal for responsible cash flow management planning.
Many business owners make the mistake of cutting back on marketing and promotion when that is the only way they will get in a constant flow of new and repeat customers. Using existing cash flow and resources in a way that prevents waste and generates more income is vital. All of these actions require planning before doing. That is operating in the future. Thinking is definitely required.
Where did all the money go? Your accounting software system tells you that.
How much cash flow will be coming in? How can your cash flow best be used to increase the long-term survival potential of your company and the individuals working in it? The answers to these questions require frequent, consistent, and careful financial planning and cash flow management – no accounting software required for those steps.
Don’t get me wrong, I’ve been using QuickBooks since the early 90’s and I still need it mainly to keep records for preparing our tax returns. But I also use the Cash Flow Mojo® Software on a weekly basis to stay in control of my company’s financial future.
What are you doing to take charge of your financial future?
Watch this video about how cash flow management software can help your business.