How to Preserve & Manage Cash for Your Business Today

How to Preserve & Manage Cash for Your Business Today

Tim Fitzpatrick:

How do you preserve and manage cash for your business in a downturn like we're experiencing today? I've got a special guest with me and that is what we are going to get into. I am Tim Fitzpatrick with Rialto Marketing, and I am super excited to have Kristy Barber with me. She's with The Fitness Accounting firm. Welcome Kristy. Happy to have you.

Kristy Barber:

Hey, thanks Tim.

Tim Fitzpatrick:

So before we get into what we're really going to talk about, which is how to preserve and manage cash flow, just tell me a little bit about you and what you're doing.

Kristy Barber:

Yeah. So we have an accounting firm that specializes in helping gyms with managing their accounting, operational strategies, and we also help other businesses that are not necessarily in the gym industry. So distribution, manufacturing, other small businesses.

Tim Fitzpatrick:

Yeah. Accounting is accounting, right?

Kristy Barber:

It's accounting, yeah. It goes across all industries and it's the same rules for the most part.

Tim Fitzpatrick:

Got it. So right now, I know in Colorado, we're starting to open back up slowly, being cautious about it. And I know other parts of the country are doing the same. There are still some States that are still in shelter in place or locked down, but I know there are plans to start opening things up a little bit. And as we do that, how do these businesses that have really been shut down or at partial capacity, how do they plan from an accounting perspective to start reopening business?

Kristy Barber:

I think there are a couple of things that you can do. And a lot of it is listening to what your city jurisdiction or state, what those rules are going to be. So that you're abiding by those as well, so many people can come in at a time, and then looking at that. If I'm only allowed to have 10 people in my facility at a time, what is my, how much money am I making of how many classes I'm going to have, and what does that look like for me if I open the doors versus I keep my doors closed. Am I going to make money if I open, or am I going to lose money, and it would be safer for me financially to keep my doors closed for another week.

Tim Fitzpatrick:

Got it. Yeah, I know. And it's really difficult to stay on top of some of this stuff, because there's so much information going on. It's just, it's really, it's tough.

Kristy Barber:

It is. And it changes daily or sometimes hourly, so you hear one thing and then by the evening it's something different. And you may have had a plan, "Hey, we're going to do this tomorrow." And then something else gets released and it pushes you back.

Tim Fitzpatrick:

Yeah. Well, and I know just because we can open, I think it's a great point that you make, just because we can open, doesn't mean that we should.

Kristy Barber:

Right.

Tim Fitzpatrick:

So it's really important for us as business owners to understand what our numbers are like and how much business we can actually do when we're operating at a limited capacity or reduced capacity.

Kristy Barber:

Yeah.

Tim Fitzpatrick:

Got it. Yeah. That's a great tip.

Kristy Barber:

I think one other thing along the lines with that is, even looking at your own time as an owner. So for example, we'll go back to the gyms. If I'm running eight classes per day, and I as the owner, are running all of them, because I need more money to come in and I'm not able to have staff help me at the moment, how long is it going to be before I'm burned out? And then I'm not giving the best service to my clients.

Tim Fitzpatrick:

Yeah, totally get it. What about cash and cash flow? I think a lot of business owners think that cash in the bank is the same thing as cash flow. And that's really not the case. So tell us more about what a cash flow strategy is and why having one is important.

Kristy Barber:

So I think a lot of what you, if you didn't go to business school, or it wasn't something that you were doing continually throughout your life, thinking of how much cash does my business have. It's very easy, well, I'll look in the bank, and that should be my balance. But think of that as only a snapshot in that moment of what your cash is, because every day you have money coming in and you have money going out. And so looking at your cash flow at any given time, it's going to be changing. And so, one of the biggest things that we like to do with our clients is put together a cash flow strategy that usually is 12 to 13 weeks. And so you're able to plan ahead for things.

Kristy Barber:

So the biggest example I always give is with property taxes and taxes. So if you're not planning, you may have a hundred thousand dollars of property taxes due in April, and you have your regular taxes due in April. And if you haven't planned for that ahead of time, you're going to be hit with a bill of, "Oh my gosh, I forgot that I had to do this. And I'm going to have to borrow from my line of credit, or I'm going to have to get a loan to be able to cover these." And that's one thing that's really important of having a cash flow strategy, is preparing for those things and knowing what's to come and being ready for that.

Tim Fitzpatrick:

Yeah, got it. Well, my assumption too, is certain businesses, their accounts receivable on how quickly they're collecting their accounts receivable, may be impacted by this, which is in turn going to impact their cash flow, right?

Kristy Barber:

Mm-hmm (affirmative). So it could be you're making, you could see your revenue, "Hey, I made a hundred thousand dollars this month," but 50% of that has not been collected yet. So really I've only made 50,000 because people are holding off maybe 30 days, maybe 45 days of paying you. And then you still have all these expenses going out and not having the income to cover those.

Tim Fitzpatrick:

Yeah. I think it's really easy to fall into the trap that my business is profitable, I'm okay. And I'm sure you've seen it where there's businesses that are profitable, but they can't make it, because their cash flow is constrained.

Kristy Barber:

Yeah. Unfortunately.

Tim Fitzpatrick:

Yeah. Well, that's why we're talking, right?

Kristy Barber:

Right.

Tim Fitzpatrick:

I don't want this to happen to anybody. So what about budgets? You know, we've all known, we all hear about budgets all the time. Look, I'm guilty of this, I don't have a budget for my business. Why is having a budget important, and what kind of tips do you have for us to get started?

Kristy Barber:

Yeah, I look at a budget as going hand-in-hand with a cash flow strategy, because if I don't have a budget in place, my cash flow is going to be crazy. And so some tips around that I would say is, look at marketing, is always one of them, which you know, always has to have a budget. Salaries should have a budget too. And looking at those and saying, I know I can allocate X amount of dollars based on maybe what you spent last year, is what I like to look at, and that gives you a base of what you would want to spend. And then you can plus or minus that, depending on how your business is doing, which is where the cash flow strategy will then come into place to help with that. So if I see that my cash flow is going up and down, I may want to reduce my budget for X amount of services that are not giving me as high of a return in the moment, or re-strategize how I want to use those.

Tim Fitzpatrick:

Yeah. With budgets, most in any business that I've ever owned, the largest portion of a budget has been employees. When you're looking at cutting, I think it's, if you need to, that's the first place that most people go, but it may not always be the best place to do that.

Kristy Barber:

I would agree with you. Your employees are what make your company run. And if you don't have them, you don't treat them well, or provide them with what they need, that's going to show, and your business may not be doing so well if you start cutting that. There's an author that wrote a book called, Simple Numbers, his name is Greg Crabtree, he's a CPA. And he has a philosophy about that, that I've adopted, that's been very helpful in explaining to clients is, look at your employees as you would a baseball team.

Kristy Barber:

You have X amount of dollars that are allocated to have players on your team and that's it. You can't go over it. And if you look at your strategy behind what I can pay my employees, I know I have X amount of dollars that are allocated this year. And that means if I already gave a raise, I can't give any more raises, but I can give a bonus based on how we're doing, and looking at it that way, because if you're just giving those incremental raises of, oh $2 here, three or four times a year, then you're running out of budget of dollars that are going to salaries. And so he had a real... His structure of how he explained it, it makes a lot of sense. And I've seen companies really adopt that and then go more towards a bonus structure if somebody is doing extra well. And then we look at it next year, let's put together a new budget then for salaries.

Tim Fitzpatrick:

Yeah, now that's a really good tip. I saw an article, this was in mid to late March when this whole thing started to hit. And I can't remember the name of the company, but it was fascinating. It was a payment processing company and their revenue just plummeted overnight. And they looked at it. They knew that if things didn't change, they were going to go out of business in short order. And rather than making this decision about, "Hey, we need to cut employees. This is what we're going to do." Rather than making those decisions in a box, they actually reached out to all of their employees. And it was amazing that they basically left these decisions up to their employees. And they were very open and honest about it and said, "Hey, this is our current situation. This is where we're at. What recommendations do you have? And what can you do to help?"

Tim Fitzpatrick:

And everybody in the company voluntarily took a pay cut. Some took more than others, they took what they could and it enabled them to keep all of their staff. They had no layoffs and they're able to at least weather the storm for a much longer period of time than they may have otherwise. And they now have much more engaged employees, because they got people that are working there and they know that the company cares about their employees.

Kristy Barber:

Yeah. And I think that's a big part of the culture of what you're building in a company. There's another book called, The Great Game of Business. And, I can't think of his name off hand at the moment, but he brought that into his company as well. Everybody knew from all the way down to the janitor, to the executive of what the numbers were of the company and how they worked and how to better understand them. And then there is a better buy-in by the employees to want to make the company better.

Tim Fitzpatrick:

Yeah. There's a lot to be said for transparency. I know some business owners are a little fearful of really opening up the hood and letting people take a look, but I guess depends on what camp you fall in, but it can be a really good thing to be extremely transparent with employees and your team. So that's awesome. Kristy, I really do appreciate you taking the time to...

Kristy Barber:

Yeah, thank you.

Tim Fitzpatrick:

... dig into some of the stuff with me. Where can people learn more about you?

Kristy Barber:

You can go to my website, thefitnessaccountingfirm.com. And we got a whole bunch of different blog posts on there to help you with cash flows, to understand financial statements. And then we have some white paper strategies to help you set up your own cash flow statements and understand how to put a strategy together. And we're always around to hop on a call and walk you through a process and be there to help you navigate your business through this time.

Tim Fitzpatrick:

Cool. That's awesome. Well, guys, if you need help, reach out to Kristy, she knows what she's doing and she's a great resource. Again, I am Tim Fitzpatrick with Rialto Marketing. Really appreciate you taking the time to tune in, and just remember marketing your business should not be a challenge, all you need is a plan. Take care. Till next time.

Kristy Barber:

Thanks.

Tim Fitzpatrick:

Bye.