Cash

Why So Many Agencies Struggle To Accumulate Cash

By January 28, 2019 April 18th, 2019 No Comments

Making money in business is not rocket science.

If you have more of it coming in than you have going out then you’ll generate cash. The number one reason that so many business struggle to accumulate significant cash is down to their financial management.

But if making money is just about more coming in then going out then how can financial management be such a challenge?

4 Aspects To Cash Accumulation

Before you can watch the cash in your business grow, there are 4 fundamental things you must get working:

  1. Building the financial plan (Mapping) – read how to map your financial plan here.
  2. Data collection
  3. Reporting & Forecasting
  4. Financial Analysis and Modelling (Co-Driver)

In this blog, I’m going to deep dive into the second element, effective Data Collection.

Effective Data Collection

The working out of money coming in and going out is not as simple as it sounds. Nowhere near.

Here’s a list of the data that needs to be tracked in order to plan money coming in:

    • [LEADS] What qualifies as a lead and the number of leads that are going to be generated

 

    • [PROPOSALS] The value of proposals that get generated for those leads

 

    • [CLIENTS] The conversion rate of proposals that get signed off

 

    • [WIP] The work in progress days between sign off and work being completed

 

    • [INVOICE] The invoicing milestones

 

  • [PAYMENT] How long it takes the invoices to get paid

And here’s what you’d need to know about money being paid out:

    • [SUPPLIERS] The suppliers that we going to transact with

 

    • [ORDERS] The Purchase Orders, Contracts, or Subscription payments due to those suppliers

 

    • [INVOICE] The invoice or cash receipt received from those suppliers

 

  • [PAYMENT] How long it takes each supplier to get paid

And in order for your bookkeeper to record all these transactions they need:

    • All of the sales invoices raised BY your company

 

    • All of the purchase invoices raised TO your company

 

    • All of the cash receipts raised to your company

 

    • All of the transactions for all of the company’s bank accounts

 

    • All of the transactions for all of the company’s credit cards

 

    • All of the transactions for all of the company’s spend cards ie Soldo or Pleo

 

  • All of the transactions for all merchant accounts eg PayPal, Stripe, GoCardless

Even with all of this information, the bookkeeper is still going to be left with queries for the people in the company involved in making the transactions, such as:

    • Are these costs related to clients and if so do we need to bill them for it?

 

    • Clarification as to what some of the costs relate to, where it is not clear from the purchase invoice or cash receipt eg was that coffee for client entertaining or was it for a staff member whilst travelling on business?

 

    • There only appears to be a card payment receipt and not a VAT receipt, do you have one?

 

  • This transaction looks like a personal cost but I could be wrong, is it business related and if so, what is it for?

It’s little wonder business owners are left frustrated that they still don’t have access to reliable financial information, even several years into running their company. It’s hard. There are so many things at play, so many pieces of data that need to be sourced and connected up and multiple people involved in the transactions.

It requires smart planning to design the right financial controls for your business and then dedication by people with the right skills to implement it.

Once you’ve got a financial plan and a consistent & reliable system for data collection, you can move into the final 2 parts of financial management – Reporting & Forecasting and Financial Analysis & Modelling. 

The Next Steps

Need help on implementing effective data collection within your agency? Book your discovery call here and find out how we can help you with the process.

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