Accounting Tips

Cash Flow Blues

Are you frequently singing the cash flow blues? If you are checking the deposits every day (and driving your bookkeeper crazy) to see what has come in because you are spending it faster than you’re receiving it, you need help managing your cash. Here are ten tips to help you relax about your cash.

1. To best manage your cash flow, you need a monthly cash flow plan showing projected revenues and expected expenses for each month of the year. A cash flow plan is a living and breathing tool that reflects both what has actually happened relative to revenues and expenses and what you expect will happen in the future. It shows where you are now and where you will be in the coming months. By updating and reviewing the cash flow plan monthly (or more frequently), you will know how much revenue you will need to generate to cover expected expenses and can take steps to ensure that you have adequate cash flow.

2. Consider putting aside a % of your monthly revenue each month until you have put aside an amount equal to one month’s expenses. This will be your "rainy day" fund whenever you have an unexpected expense or an unexpected dip in revenue.

3. Establish a monthly draw of income based on what you think the firm will generate in net profit each month. You can take a second draw quarterly of any excess profit that has not been paid. Distribution of income should be based on the firm’s net profit. Avoid distributing more income than the firm’s net profit can support.

4. Put aside funds monthly for large expenditures that are paid in a lump sum each year.

5. Avoid borrowing to pay partner draws.

6. Aggressively pay down any debt you have and pay off your line of credit each year.

7. Bill monthly.

8. Aggressively manage your accounts receivable.

9. Automate your firm accounting function. In order to effectively manage your firm finances,
you need information that is most easily obtained when the accounting function is automated

10. Manage your personal finances with the same discipline as your firm. Avoid living beyond your means.

Poor firm cash flow planning coupled with poor personal financial management can lead you to make poor decisions. Avoid the cash flow blues by putting these principals into place in your firm.

Pick one day each month and schedule it for billing; put those days on your calendar well in advance. Except for court ordered appearances, treat it as a client meeting that should not be canceled or re-scheduled. All of your bills should be reviewed and finalized as efficiently as possible. (Avoid interruptions and distractions!) Keep track of the amount of time that it takes you to complete the task. When you know how much time a task will take, it is easier to begin it.

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Other Accounting Tips

1. Establish a firm operating account, payroll account and a trust account.

2. Post deposits and withdrawals daily.

3. Make a copy of checks received and deposit slips. File them in a "Receipts – 200_" file. Additional copies of trust account checks can be filed in a client file.

4. Make deposits daily.

5. Avoid holding cash (or checks) in your office.

6. Reconcile bank statements monthly.

7. Establish separate trust ledgers for each client.

8. Reconcile client ledger balances with the monthly bank statement.

9. Provide a receipt to clients for cash payments.

10. Have cash payments witnessed by someone else in the firm.

11. Pay firm invoices when due.

12. When invoices are paid, record the date paid, the check number and the amount paid on the invoice and file by vendor name.

13. A firm owner or partner should sign all checks written and review the invoices or other documents that are the source of each check.

14. A firm owner or partner should open and review bank statements before the bookkeeper receives them.

15. A firm owner or partner should review bank account reconciliation statements monthly.

16. Automate your firm accounting function.

17. Post client expense advances as an "accounts receivable" rather than as an expense. Client expense advances are expected to be reimbursed and should be categorized as a "loan" to the client.

18. Routinely write off accounts receivable that are deemed uncollectible.

19. Do not commingle client funds and general operating funds.

20. Know the number of days your bank requires pass before funds are available and never distribute trust funds against a check that has not yet "cleared" the bank.