The Five Key Mindsets of Good Cash Managers

A business owner’s mindset about cash management is the difference between having enough cash and struggling to meet expenses every day.

When I meet a business owner who struggles with cash flow, I ask, “Tell me about your business?” They can say whatever first comes to mind, and they usually tell me the good things, starting with whatever their business is known for and what’s going well.

• “Our unique products are awesome! We can’t make enough!”
• “We carry the best selection in the area and have service to back up the sales.”
• “We have a contract with the power company that others would kill for.”
• “Our systems can handle a lot more volume. We’ve figured this out to the last detail.”

People talk forever about the wonderful parts of their businesses. Those areas that the business was built around- marketing, products, software, services… anything that helped them grow sales.

The One Thing that Struggling Business Owners Never Talk About

A struggling business owner never about cash management.

• Basic bookkeeping is completely avoided, except to tell that the books need to be cleaned up.
• Accounts receivables? Only when a client is way past due.
• When it comes to paying the bills, that’s why I’m there… to help them pay their bills.
• They will never voluntarily talk about how to manage their cash.

I don’t blame them. They didn’t start their business to manage cash. They started their business to do something they really enjoy and get paid for it – like create web sites, sell real estate, practice law, do collision repair, or any of a million things that people enjoy doing to make money.

When I start working with a business that has a cash crunch and may not survive, I first work with the businesses owner’s mindset. I help them understand that while managing their cash isn’t what they want to do, it will keep their business alive and so they can do what they love to do. It allows them to spend more time and energy on what they love, but only after their cash management systems are in place.

The Five Key Mindsets of Cash Management Experts

If you want to start developing good cash management habits, then start with how a cash management expert goes about solving cash management issues. You don’t need to make this part of your personal DNA or what you are thinking about every waking moment, but if you want to stop worrying about your cash and start to do something about it, here are the five key mindsets of cash management experts:

1. “My financial records need to be accurate, up to date, and meaningful.”
2. “My Cash Management Dashboard will measure current status and progress.”
3. “I always look for the root cause of the problems I’m seeing.”
4. “I look for improvements in each part of my business to free up or keep more cash.”
5. “Good cash management is a journey, not a destination.”

“My financial records need to be accurate, up to date, and meaningful.”

Financial statements.

Bookkeeping.

Balancing the check book.

Rainy day fund.

Cash slush fund.

Reserves in the safety deposit box.

Credit cards.

The spare change that you keep in a jar on your desk.

Keeping track of business finances is messy, especially if you and your team haven’t made accurate financial reporting a priority. Accurate financial records are fundamental to understanding your business.

Good financial records are the rock-solid foundation of managing your cash. Without accurate, timely, and meaningful records, you will never be able to make significant progress toward good cash management. You may make fatal mistakes, ruin key relationships with suppliers, or even worse, not be able to deliver to your clients.

How do I emphasize good bookkeeping enough? I talk to business people who look at financial record keeping as a burden, a cost that needs to be trimmed as much as possible, and something that is treated with contempt. As far as I am concerned, this is not where to go with the lowest cost bidder because you generally get what you pay for. Cheap book keepers will cost you a lot in the long run, unless they are regularly supervised by a competent finance person who understands financial accounting.

Now that I’ve convinced you to get a good bookkeeper, there are three keys to good financial records for your business: They need to be accurate, up to date, and meaningful.

Accurate: This is absolutely the foundation for good cash management – knowing where your money is. Accurate record keeping is a function of bookkeeping and accounting. You need a rock-solid bookkeeping expert making sure that entries and reconciliations are done correctly.

Up to Date: There is no way to manage your cash if your books are not up to date at least weekly. If you are in real cash crunch, you may need to update your books daily. Who owes you money? What are the checks that haven’t cleared yet?

Too often business owners take their cue from doing quarterly or annual taxes. They literally update their books just in time to file taxes. To do proactive cash management, you need to be in control, not the taxman. Get caught up. Today. Now.

Meaningful – One of the fundamental mistakes that I often see is that a company’s chart of accounts is generic. It’s a straight-from-the-box chart of accounts provided by QuickBooks.

“A generic chart of accounts is not good enough to manage your unique business.”

Each company is unique. Your company is unique.

Think about the story you want your reports to tell, then structure your chart of accounts, classes of business, items, and everything else that you can possibly configure in the software, to get reports personalized for your bussiness’ needs.

Some ideas for structuring your chart of accounts and configuring your software:

• Track multiple revenue streams from product types or client segments
• Identify key expenses of delivering goods and services to your clients
• Know your profitability by client, product, revenue source, lead source

Focus on the most important factors that ensure your business will succeed. Those factors are what you want to build your recordkeeping and reports around.

One last note. There is this funny concept called accrual accounting. I won’t go into detail here, but you may be required by law to run accrual accounting to calculate your taxes. If you do, make sure that your cash management reports are cash basis reports. If you don’t, you’ll never have meaningful and accurate reports to manage your cash.

Trust me. Please.

I’ve literally spent hours with clients educating them, showing them the results of accrual vs. cash reporting, and convincing them to change for their own good, and even calling their tax accountant to get permission to change the reports so they can manage their cash.

Now that you have your fundamental mindset in the right direction, we can move forward.

“My Cash Management Dashboard will measure current status and progress.”

Once your bookkeeping is up to date and your chart of accounts is setup to provide meaningful information, it’s time to look at the reports you need to track your cash so you can start to manage it. We’ll call this collection of reports your Cash Management Dashboard. The trends and details, and the specific reports that you need, will all depend on your business – the products, the margins, the relationship you have with your clients and your vendors.

Here are some ideas on good trends to look at and track on a regular basis:

• Cash coming into the business
• Cash going out of the business
• Cash balances in your accounts
• How much people owe your business and how long they’ve owed it
• How much your business owes others, and how long you’ve owed them
• The value of your inventory – raw materials, work in process, and finished goods

Any measure that tells you where your cash is, where it is going, and where it is coming from may be good indicators to track on a Cash Management Dashboard. As your business changes, your important measurements may change with as well. Don’t forget to update your reports!

“I always look for the root cause of the problems I’m seeing”

Your problem will almost never be what you think it is. What you think is the problem is often a symptom. Here are some real-life examples from clients that I worked with:

Symptom 1: The client couldn’t make payroll.

Client’s Quick Conclusion: There must be too many people.

Real Problem: The people were doing the wrong activities and the client needed to manage them better.

Symptom 2: The client had too much inventory.

Quick Conclusion: The sales people can’t sell and there wasn’t enough advertising.

Real Problem: The client was buying the wrong products but didn’t realize it.

Symptom 3: The client didn’t have enough cash in the bank.

Quick Conclusion: “We need to sell more.”

Real Problem: The more the client sold the more cash was needed to pay for salaries and subcontractors while waiting to get paid, 90 days after the job was done.

You get the idea. The point is, you need to dig, ask why, and continue to search for the real reason you are struggling.

If you want to understand more about this topic, read this: "Keep Digging, the Problem with Your Cash Flow Isn't What You Think It Is."

“I look for improvements in each part of my business to free up cash or make more money.”

There is an opportunity in every part of your business to make money or to design the business to optimizing your cash. I am not just talking about lowering expenses. I am talking about how you:

• Sell your products
• Receive money
• Pay your vendors
• Decide which products to sell
• Determine who you sell to
• Look at every aspect of your business

I’ve developed a list of 105 ways to improve a company’s cash management. These are all tactics that I have personally used or talked to people who have used them. The list grows every week.

The challenge is that you may not know what you don’t know, and you don’t know all the ways your business can better manage cash. Keep looking. Keep learning. Keep asking “Is there a better way to do this that will free up cash or help me make more money?”

“Good cash management is a journey, not a destination.”

My friends, cash management is one journey that will never end, as long as you are in business. If your business is successful, cash will be coming in and you’ll have more than you need, so make it work for you.

Cash management is like every other aspect of your business, a constant ebb and flow of needs, challenges, and successes.

Most entrepreneurs don’t like to think about cash management because that is not their joy, their life’s work, their burning desire, or passion. But having enough cash allows them to carry on the work they love. For them, the goal is to have people who work with them handle the daily cash management activities, report back, and help resolve problems when they come up.

For most business owners the goal will be to put cash management into automatic systems and planned, routine systems and checklists. The difficult part is getting started and fixing basic problems. From there the systems can be put into place and make things much easier to maintain.

Start Thinking Like a Cash Manager Today

Take baby steps.

Get your bookkeeping up to date. Make sure it’s accurate. You’ll start to see the stories your books are telling you about your own business.

Talk to the people you work with about your challenges. Go to lunch with someone you trust and open up about a challenge you are having.

This will probably be uncomfortable. Learning something new usually is. But once you fix your cash problems and sleep better at night, it will be worth it.

What’s Your Mindset About Cash Management?

Are you still in the “I just don’t want to deal with it” camp? If so, I’d love to know why. Do you have enough cash to live out your dreams, or is there some other obstacle?

Is there a topic you’d like to learn about? Contact me at [email protected] to introduce yourself, share ideas, or ask me questions about managing your business’ cash.

David Safeer has helped businesses implement cash management systems that create business breakthroughs since 2002. He founded The Cash Management Project in November 2018, to help businesses manage and maximize their cash resources.  David writes, teaches, and works with diverse companies around the world.

Thinking globally, one business at a time.