by Patricia Olson
Small Business Consultant

Many small business owners that I work with do not know how to manage cash flow.  Money comes in and it goes out, but why and where it goes is beyond them. For example, a client pays my client $25,000 and by the following week it is all gone. What happened to the money, the owner asks me. When I give her the precise figures she gasps in disbelief. The solution to this basic business problem is for the owner to change the way she thinks about money. She has to learn to think like an accountant.

To begin the process of changing her thinking, I have my client initiate a weekly cash flow analysis. We start with a beginning check register balance, add in the deposits for the week, and list the payables. Listing the payables is a useful exercise, since the owner sees who she is paying and how often. I will also list liabilities and reduce the balance when a payment is made toward the balance. Each week we go over the report. This takes time, but in just a few weeks I see growth in her understanding of the process. She begins to integrate her findings and understands what is expected of her on a weekly basis.

As soon as my client becomes aware of her payables she becomes more conscious of her spending habits. She begins to ask herself questions and, as a result, make wiser decisions about purchases. She makes do with supplies she already has, rather than purchase new items she does not need. She puts money aside for a vacation and other large expenses. As we worked with her cash flow one day she said to me,³we need to put money aside for this.² This statement meant that my client was ready for the next step, setting up a savings plan for large expenditures. The process took about 6 months of weekly cash flow management for full integration to occur in my client¹s mind. Today she thinks like an accountant: she sees money as a tool rather than an overwhelming problem she does not want to face. As a result, she not only makes more money, she feels in control of her business.