The number one cause of stress and insomnia for small business owners is concerns about cash flow. Even if the company generates good profits, these do not necessarily guarantee an inflow of money at the appropriate time. Let's look together at why, and how to ensure healthy management.
Liquidity and profits: the difference
The terms "cash" and "profits" are sometimes used interchangeably, but they are not the same thing. This distinction is crucial, because confusing the two could be risky.
Cash represents money owned and receivable from the business. Cash flows, known in English as cash flow , represent the inflows and outflows of money.
A customer pays cash; it’s a cash flow. You pay the company's taxes to the government; It’s an outflow of money.
As for them, profits, also called profits, represent the company's revenues minus expenses. Whether your customer pays cash or not, the sale made increases your revenue and hopefully your profits. But when you pay business taxes, this change in your cash flow doesn't change your profits.
It's not uncommon to see businesses struggling with cash flow despite posting an enviable profit . Cash inflows and outflows are chronologically independent of the income statement. An asset acquisition could lead to a big cash outflow in December without increasing the “expenses” category for the year. Services delivered and invoiced to a major customer must be recorded in “revenue” for the month even if the customer is late in paying. As money is the crucial engine of any small business, its success depends on its ability to manage its cash flow.
Liquidity management with Helm
Managing and forecasting cash flow helps you ensure you have the money in the bank you need to meet your obligations – tomorrow, next month and into the future. Many businesses make the mistake of relying on the amounts they have in their coffers when making decisions. We have found and commonly work with a tool that will help you make informed decisions, based on expected cash flow.
Helm is an automated cash management application, developed by entrepreneurial accountants for accountants and entrepreneurs. It forecasts cash flow for you, and helps you answer the question: " If I pay this today, will I have enough money to pay that tomorrow?" »
Connection between Helm & Quickbooks
Helm connects to QuickBooks Online (also Xero) to extract information to make forecasts. What we like most about this app is that Helm takes into account the payment history of your accounts receivable to estimate when you should receive the amounts owed. The application offers a lot of flexibility: it allows you to build and compare several scenarios, and to change data if you know things that your accounting system cannot predict – for example that you anticipate an outflow of money to repay a debt before maturity. It is even possible to schedule the payment of your invoices according to the chosen plan.
We have been working with Helm for a few months and we are delighted.
This application allows us to have increased visibility into forecasted cash flows. This gives us more certainty in our decision-making. The simplicity and clarity of Helm's information at a glance also allowed us to identify and address some of our inefficiencies. For example, by imposing tighter payment deadlines on our late-paying customers, we were able to more quickly accumulate the amount we needed to make an investment without fear of running out of cash.
Do you want to sleep better at night, while being certain that you will not be overdrawn next month? Take a look at the Helm site https://www.takethehelm.app/ (English only).
Call one of our team members if you would like to know more, and we will be happy to share our experience and guide you.