In order to increase cash flow, opportunity costs need to be managed. For instance, if you own and operate a small lawn care service, you most likely don’t have the volume for a full time accountant (yet!). Many small businesses can keep records and make the necessary entries in their accounting software in about 5 hours a week. Unless you are running a bookkeeping firm, accounting probably isn’t your core competency. If you were to outsource this task to a professional bookkeeper, he/she would be able to complete this same task in about 1 hour a week. Even if you pay this ‘outsourced employee’ $50 per hour, the chances are good that your cash flow will still increase. Why? Remember, by outsourcing your bookkeeping you are freeing up about 5 hours a week, which could mean an additional 2-3 new clients. In the long run, those clients, with referrals, can amount to an increase in paying customers, all because you decided to focus on what only you can do (get customers) and let someone else do the busy stuff.

Outsourcing is one of the greatest resources for small to medium sized businesses, because it offers a cost effective solution to taking a business to the next level. The advantages to outsourcing are that it allows a business owner to focus on core activities and gives him/her access to professionals for everything else. As mentioned above, it also increases cash flow and in business, CASH IS KING.

In summary, outsourcing allows small and medium sized businesses access to large business resources at a small business budget.

One of the most common mistakes young entrepreneurs make is thinking that their Net Income (income minus expenses) represents the amount of cash that should be in their bank. This is wrong. Net Income and actual cash in the bank are not always the same. The sure way to determine the actual cash available in your bank is to properly prepare and analyze the statement of cash flow.

As the chief accountant for your small business you can use this financial statement to determine your ability to service your short-term obligations – BILLS. (Most of you entrepreneurs are accountants whether you like that title or not.)

Another person that would enjoy seeing your statement of cash flow is your lender. If a loan or line of credit is issued to you, the monthly repayment will fall into the category of “short-term obligations”. If the lender or investor knows that you have a strong cash flow, and will be able to service the debt, he/she will more likely agree to grant financing to your company.

A simple way to prepare this statement is using the Direct Method. This is done by listing the major categories of cash income and cash expenses. Add the column and there you have it!

Example:
Cash sales from X product: $50,000
Cash sales from Y product: $15,000
Labor Expenses: ($10,000)
Loan Repayment: ($5,000)
Materials Purchased: ($20,000)
Total Cash Flow: $30,000

By preparing a simple statement like the example above shows us that we have 30K available cash for growth or additional future short-term obligations. This is exactly what lenders want to see.