Did you know you barely made payroll this week? Surely you would have heard about it from your office manager or bookkeeper. But they didn’t say anything, so all’s good, right? Maybe not.
Here’s a common scenario:
The owner pops their head in to the bookkeeper or office manager’s office and says “are we good for payroll?” When the response is “Yes,” the owner walks away. Maybe they’ll even double check by looking at their bank balance on their phone and, seeing the number in the bank will cover payroll, think everything is OK.
But it’s not OK. Because what the bookkeeper or office manager is doing to GET to that number isn’t ok.
Maybe it’s because they are way behind on their collection efforts, maybe they don’t want to look bad in front of their bosses or maybe they are way in over their heads and don’t want to admit it. They will never tell the owner what had to happen to make payroll this week.
What the boss doesn’t know is that the bookkeeper just tapped the line of credit to make payroll without any idea of how to pay it back.
…Or they dipped into the workman’s comp (or other) reserve fund they’ve been building all year.
…Or they have decided not to mail the checks you just signed for all of your vendors.
…Or they unilaterally decided not to pay your biggest vendor.
…Or they decided to max out the credit cards (yet again) at a 30% interest rate.
But payroll gets paid somehow and all is good in the world of the owner, yet the bookkeeper or office manager only gets a slight reprieve until the struggle begins again the next day. The can gets kicked down the road over and over again.
Only when things get very bad and there are no more funds to shuffle is when the problems come to light. And unfortunately that happens more than we like with small businesses…and unfortunately it is often too late to do much about it.
How do you prevent unknowingly flying by the seat of your pants? It’s easy. It’s called involvement.
Here are a few simple ways to make sure you can stay involved:
- Don’t abdicate bill paying responsibility to anyone. It doesn’t mean you have to sign every check but you have to at least be presented with a list of payments that are going out the door that week. Once you start seeing what you are paying you get a whole new level of understanding of the cash flow and expenses of your business. New technologies such as Bill.com allow unprecedented access to owners of their expenses and vendor bills.
- Any transfers for the Line of Credit must be authorized by you, and accompanied with a pay-back strategy. You need to understand where the future cash is coming from to pay back your loans.
- Set up a cash flow forecast and review it weekly with your bookkeeper or office manager. Help them shoulder the burden of how to make the funds you have available work for you.
- Take a look at your total debt picture. Sometimes payroll is made because other things are put on the credit cards or you have maxed out vendors credit. Uncontrolled debt can kill your business as fast as slow sales. You will need to include in your cash projections how you will pay down the debt you already have.
- Put cash flow responsibility at the right level. Let’s face it, most bookkeepers and office managers don’t have the skills to manage cash of a substantial small business. You need to bring in the right skill set in either a Controller, CFO or you need to take it on to make sure you have both the short term and long term picture accounted for.
Owners are looking at driving new business (as they should) and focusing on top line growth, and not focus on the details of managing cash. This happens more than we care to admit. It’s almost an epidemic.
In our experience, only those owners who have found themselves in dire cash crisis seem pay attention to cash. Don’t learn the lesson the hard way. Get involved in your cash flow management– don’t abdicate it to the staff alone. It’s often more they can manage, but they’ll never tell you that.