The Problem with Small Businesses and Accounting Technology

accounting technology hero image confusion

Accounting technology has come a long way since the dawn of time. While it took thousands of years to go from clay tablets to iPads, modern accounting software has evolved at the speed of light. In less than 30 years we’ve moved from early enterprise resource planning (ERP) systems to the versatility of the cloud.

What does this mean for the average small business? Unless you own an accounting or bookkeeping business, it’s not likely that a spreadsheet is your spirit animal. However, cloud-based software-as-a-service (SaaS) applications, like PayPie, have made it easier for small businesses to harness the benefits of automation.

The problem is many small businesses are not only time-starved —  they’re somehow missing out on the time and money they could save by adopting accounting technology.

Industry surveys indicate small businesses aren’t keeping up with the pace

According to the good folks at the GetApp Lab, we’re currently in the “Age of Intelligent Accounting.” We’re living in a time when technology lets you easily forecast cash flow, automate data entry, improve processes and securely share data.

age of intelligent accounting

Yet, a FitSmallBusiness study of 293 small business owners found that no single form accounting software, in any category, had a usage rate of 50% or more. The only category that came close was general accounting software with 49.8%. In fact, most categories came in at 40% or less.

QuickBooks found similar results when it surveyed 400 small business owners with 20 employees or less. Most spent more time than they’d like on back-office operations, such as accounting, administrative tasks, bookkeeping, inventory and accounts receivable. Furthermore, only 30% of these small businesses considered themselves “highly automated.”

Why aren’t small businesses adopting accounting technology at historic rates?

Most small businesses said cost was the main reason they weren’t using small business accounting software and other accounting technology. The irony is that these tools are often quite affordable. For instance, the “Simple Start” version of QuickBooks Online is $20 USD a month and there are often sign-up promotions.

Then there’s the simple fact of valuing the time and the savings gained by preventing costly mistakes. Every hour that a business spends on a process that could easily be automated is an hour that’s lost toward growing the business. An hour spent each day on updating a spreadsheet adds up to 5 to 7 hours a week or 20 to 28 hours a month.

Mistakes also cost time and money. Any business that files its taxes late without filing an extension, will be fined. The longer the problem goes unsolved, the more interest and penalties accrue. Without proper processes, solving the problem is also harder. Any mistake that goes unresolved can easily snowball into a spiral of despair.

Pro Tip
In most cases, the costs of accounting software and related accounting technology are tax deductible in both the United States and Canada.

The times are changing and so should small businesses  

Within the next few years, 80% of accounting and finance tasks will be automated. If you take the literal translation of few as three years, this is soon, very soon.

It doesn’t mean the robots will take over. What it means is those small businesses who embrace process automation by using cloud-based small business accounting software and the ever-growing ecosystem of apps will:

  • Reduce errors by up to 95%.
  • Make some processes up 4 times faster.
  • Gain cost savings of up to 80%.

“Cloud accounting automation capabilities will significantly streamline internal operations. This lowers the risk of data loss and miscommunication. And given the technology’s low cost of entry and maintenance, its return on investment cannot be ignored.”
—Tammatha Denyes, TD Accounting Services, 2018 QuickBooks Firm of the Future Runner-up

Where small businesses can leverage accounting technology

According to small business owners themselves, they spend too much time on accounting, bookkeeping, administration, inventory and chasing payments. However, they’d rather be spending more time on things like building their teams and marketing their products and services.

tasks with too much time

Going back to the costs of failing to automate:

  • 70% of small businesses aren’t using apps to help them automate scheduling — which not only wastes time, it puts these businesses at risk of violating labor laws and increasing turnover.
  • 60% of small businesses aren’t automating their payroll — let’s just say that in the history of bad ideas, this is one of them. Hello, tax laws anyone?
  • Only 21% of small businesses have integrated their accounting software with invoicing apps — considering late payments are a top business concern and cash flow headache, this should be a “no-brainer.”

Any small business accountant or bookkeeper reading this piece is probably saying, “Yes, yes, yes!” to all the points above. But how do we turn the tide and get small businesses to take advantage of the simplicity and effectiveness that accounting tech offers?

The role accountants and bookkeepers play

“We can consult with our clients to help them solve their pain points as they occur and make real-time changes to their business. This makes us more valuable than ever before.”
—Tanya Hilts, Cloud Bookkeeping Services, 2018 QuickBooks Global Firm of the Future Winner

Once a business works with an accountant and/or bookkeeper, they quickly see the benefits of this relationship. From complying with tax and labor laws to setting and achieving financial goals, there are no better advocates than small business accountants and bookkeepers.

As the people establishing financial processes, accountants and bookkeepers have a unique opportunity to get small businesses using accounting technology. Many financial professionals have their core go-to apps that they often recommend to businesses. Slowly but surely, this is how the bridge will be gapped.

When you consider that 40% of small businesses claim that doing their own bookkeeping and taxes was the worst part of being a small business owner and another 64% do their bookkeeping by hand, it’s easy to see where the opportunity lies.

It’s all about empowerment

“With every new client we bring on, my primary missions are the same: to make their financial processes easier and to help them reach their financial goals.”
—Michael Ly, Reconciled, 2018 QuickBooks US Firm of the Future

At PayPie, we’re 100% behind empowering accountants, bookkeepers and small businesses. It why we’ve developed our risk assessment and cash flow tools and why we’ve invested in creating useful, informative and actionable content in our blog.

Just as businesses benefit from automation, so do accountants and bookkeepers. There’s no need to spend hours building custom reports. Grow into your role as an advisor and advocate by helping businesses see the big picture with PayPie.

Trying our powerfully designed and intuitive analytics is as simple as creating a PayPie account then connecting a business’ QuickBooks Online account.

Main analytics dashboard

PayPie currently integrates with QuickBooks Online and was a 2018 Small Business App Showdown Finalist. 

The information in this article is not financial advice. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Stock image via Pexels. Age of Intelligent Accounting infographic via GetApp. Table of back-office tasks via Intuit QuickBooks. 

Forecasting Cash Flow in QuickBooks Online

cash flow forecasting in QBO main image

The average small business owner might not be as familiar with cash flow as they should. However, if you’ve got an awesome accountant and/or bookkeeper on your side, they can wax poetic on the virtues of a good cash flow projection.

Once a business starts forecasting cash flow, they’re quickly inspired and empowered by the insights it provides. This is why PayPie has included both monthly and daily cash flow forecasting within its analytics dashboard.

Accountants and bookkeepers who use QuickBooks Online (QBO) know that the Cash Flow Projector tool is only available within QuickBooks Desktop. But hope is not lost! In this article, you’ll learn how to use PayPie to project cash flow by simply connecting a business’ QBO account.

Creating a cash flow forecast in QBO

Put down the pen and paper. Forget about opening Google Sheets or Excel. Simply sign up for PayPie, then connect the business’ account. Forecasting cash flow is really that easy.

The app will then do a deep dive on the business’ financial data, looking at hundreds of variables. (And we’re just getting started…) The assessment of these variables is then presented in a unique analytics dashboard, with all of the cash flow metrics detailed in the cash flow tab.

main dashboard cash flow tab

Learn more about the PayPie QBO integration

Forecasting cash flow — monthly projections

The data for the monthly cash flow forecast pulls from the company’s income statement, balance sheet and cash flow statement. The graph shows three months of actual cash flow and another six months of forecasted cash flow. The forward-looking projections are based on the numbers from the previous three months.

Cash flow is broken into the three main categories:

  • Operating cash flow — inflows and outflows related to the sale of goods and services.
  • Investing cash flow — inflows and outflows that stem from the sale or purchase of capital investments.
  • Financing cash flow — inflows and outflows from borrowing activities or external investors.

Monthly changes in cash flow also helps identify patterns in order to leverage peaks and overcome the valleys.

cash flow forecasting monthly projections

Forecasting cash flow — daily projections

The daily cash flow projection shows the beginning and ending cash balance for each day — based on current and previous data in the business’ main financial reports.

Daily projections help you get more granular in your cash flow analysis. For example, a pattern of negative cash flow days can help pinpoint if a business is giving their vendors more time to pay than their debtors are giving them.

cash flow forecasting daily projections

5 reasons to use PayPie for cash flow forecasting.

Analyzing cash flow — accounts receivable

Receivables and payables are key components of cash flow. With PayPie you can generate an assessment of each one. Assessing accounts receivable helps identify overly generous credit terms and outstanding invoices that negatively impact cash flow and a business’ overall financial health.

In the accounts receivable analysis, you’ll be able to quickly access:

  • Total invoices raised — for a period of 12 months, regardless of whether the invoices are open or closed.
  • Monthly invoices, payments and open AR — laid out in a convenient bar graph. (Open AR = (previous month’s open AR + current month’s invoices) – payments.)
  • Top five exposures — showing which customers represent the highest amounts of outstanding invoices.

accounts receivable

Analyzing cash flow — accounts payable

Just as accounts receivable shows inflows, accounts payable details outflows. Crucially, if there are late payments which affect the business’ short- and long-term credit profile, as lenders base their conditions on previous payment histories.

The accounts payable analysis features:

  • Total bills received — for a period of 12 months, regardless of whether the bills are paid or unpaid.
  • Monthly bills, payments and open AP — laid out in a convenient bar graph. (Open AP = (previous month’s open AP + current month’s bills) – payments.)
  • Top 5 exposures — showing which vendors represent the highest amounts of outstanding bills.

accounts payable

Comparing income to expenses

In order to provide a historical and top-level perspective, PayPie also graphs total income and expenses for a period of 12 months. This yet another way to highlight trends, such as when expenses either exceed or come close to surpassing income.

income and expenses

Generating a breakdown of expenses

Delving further into examining cash outflows, PayPie’s cash flow analysis also breaks down expenses on a monthly basis, displaying 12 consecutive months. It’s a quick way to provide a snapshot of a business’ main expenses throughout the year.

expense breakdown

Handy reference — basic cash flow terms and concepts.

Creating a cash flow statement in QBO

If all you want to do is create a cash flow statement, simply go to the QBO reports tab and select “statement of cash flows.” However, why have just a cash flow statement when you can have a comprehensive cash flow forecast? Plus, our dashboard includes a cash flow statement as well.

cash flow statement in dashboard

Assessing credit risk

The main question that PayPie’s financial analysis answers is, “How does my business look in front of lenders?” We provide insights into cash flow as it’s closely tied to determining the business’ ability to manage its finances and credit.

However, our algorithm also examines a range of variables related to risk in order to create a proprietary risk score. Unlike traditional credit scores, it’s based on a business’ own real-time accounting data, instead of third-party sources. It doesn’t replace a traditional credit score. Instead, it serves as an internal benchmark of how the business is currently performing.

If a business is planning grown and knows that it’ll need funding in the future, it can use the risk score and the insights from the assessment to be better prepared when applying for financing.

risk score

Taking action through insights

If you’re taking the time to forecast cash flow and evaluate risk, you’re already interested in troubleshooting. But you’re also interested in solutions as well. This is why PayPie also includes a list of targeted insights, that pinpoint problem areas which need to be addressed.

These insights into financial health and borrowing capacity include:

  • Cash flow coverage ratio — the ability to pay interest and principal amounts on borrowed funds.
  • Creditor days — the average amount of time needed to settle debts with trade suppliers.
  • Current ratio — the ability to meet short-term debt obligations within the next 12 months.
  • Debt-to-equity ratio — shows how much debt is used to run the business as well as the value of the assets compared to the debt.
  • Debtor days — how long it’s taking to collect payment from debtors.
  • Interest coverage ratio — determines how easily a business can pay interest expenses on outstanding debt.
  • Leverage ratio — how much operating and financing leverage a business has in order to manage debt or acquire additional funds.
  • Net worth — the total value of the assets after all debts are paid.
  • Return on capital employed — how well a business’ capital investments are paying off.
  • Revenue growth — compared year over year.

insights (2)

Start forecasting cash flow today. Sign up for PayPie and connect your business.

PayPie’s cash flow forecasting is currently free. In the future, each user will be limited to two businesses. Volume pricing for accountants and bookkeepers will also be introduced.

In the meantime, try it out and let us know what you think. We mean it, we value your feedback.

QuickBooks and QuickBooks Online are registered trademarks of Intuit Inc. PayPie integrates with QuickBooks Online. It does not integrate with QuickBooks Desktop. 

The information in this article is not financial advice. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Stock image via Pexels. App images via a PayPie demo account. 

PayPie’s QuickBooks Integration – What You Need to Know

PayPie QuickBooks Online Integration

They’re not media darlings or mythical unicorns, they’re the hard-working people giving everything they’ve got to make their businesses a success. In fact, 99% of all the businesses in the world are small businesses.

In spite of their diligent efforts, 60% of small to medium-sized enterprises (SMEs) that fail point to cash flow. There’s also lack of funding to bolster cash flow with 1 in 5 SMEs being turned down by banks and traditional lenders. What’s worse, is that many SMEs don’t know the reasons why or even how to improve their chances.

The power of a one-click risk assessment  

There’s no question that QuickBooks Online is a smarter business tool for the world’s hardest workers — small business owners. That’s why PayPie is excited to integrate with QuickBooks Online to offer these businesses powerful, intuitive, one-click risk assessment — based on a business’ own first-hand accounting data.

While expense tracking, payments and other day-to-day business functions can be easily automated, if an SME wants to know their business credit rating, they have to rely on an outdated system based on second-hand information. That is, until now.

With PayPie all you have to do is create a PayPie account, then connect your QuickBooks Online account. It’s that simple and your near-real-time credit score will be generated in seconds.

main dashboard

Hundreds of variables, one concise indicator

PayPie analyzes the financial data in the business’ QuickBooks Online account. Our application sorts the data into key variables and indicators, which are then further divided into two main categories — risk assessment and cash flow analysis.

The risk score, the focal point of the dashboard, is a capstone or synthesis of all the risk assessment variables. Like a car odometer, the risk score shows if the business is accelerating, resting at a comfortable cruising speed or losing momentum.

The table below breaks down some of the variables and indicators that PayPie uses to assess risk — factors that small business lenders often use their own assessments:

elements of risk assessmen

The added value of cash flow forecasting 

Risk assessment is to cash flow as a chicken is to an egg. You can’t have one without the other. Businesses need cash flow to survive. As such, they need to be aware of exactly how and when the cash flows in and out of their business. Cash flow forecasting also helps businesses predict when they’ll need funding — letting them plan and prepare to apply for these funds more effectively.

PayPie helps SMEs monitor cash flow by:

  • Detailing accounts receivable and payable exposures.
  • Comparing income to expenses.
  • Analyzing categories of expenses.
  • Projecting monthly cash flow.
  • Providing a daily cash position.

AR days overdue

Daily cash flow forecast

Learn 5 reasons why you should use PayPie for cash flow forecasting

Risk assessment that includes solutions

In developing their analytics dashboard, PayPie didn’t want to provide just a series of charts and graphs alone. They also wanted to offer solutions. This is why each assessment also includes a list of insights that show businesses which goals they’re achieving and where they’re reaching their goals and where they can improve.

Our insights that help SMEs improve their financial health and increase their chances of getting the funding they need include:

  • Evaluations of key liquidity ratios.
  • Comparisons to industry benchmarks.
  • Generation and investment of operating cash flow.
  • Debt and repayment indicators.
  • Return on capital employed.

risk assessment with insights

Financial tools for businesses, accountants and bookkeepers

Any business, accountant or bookkeeper using QuickBooks Online can use PayPie’s risk assessment and cash flow forecasting. We want to put these tools into the hands of the people who need them the most — whether it’s the businesses themselves or the financial professionals who consult and advise them.

Unless you’ve been stranded on a desert island or huddled in a safe room, you know that technology is set to transform accounting. This “Fourth Industrial Revolution” will also change the relationship between accountants, bookkeepers and businesses.

When all the basics are covered and simplified by automation, there’s more time to focus on conceptual and insight-based tasks, like cash flow consulting. The more businesses know about their current and future cash flow, the more able they are to make strategic, data-backed decisions.

Learn more about how cash flow consulting benefits businesses and accountants alike. 

Look better in front of lenders.
Improve your cash flow.
Grow your business.

“Every day, small businesses struggle with a lack of accurate and efficient ways to assess risk and accesss funding. We’re leveling the playing field so that SMEs can seize upon further opportunities for growth.”
Nick Chandi, PayPie CEO and Co-Founder

We invite you to try PayPie and we can’t wait to hear what you think

See more reviews and insights via FitSmallBusiness

In addition to our listing in the QuickBooks App Store, you can also learn more about PayPie in our listing within the 2018 Small Business Accounting Software Reviews & Pricing Guide.

QuickBooks, QuickBooks Online, QuickBooks Connect and the Small Business App Showdown are registered trademarks of Intuit Inc. 

The information in this article is not financial advice. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

10 Free (& Fun) Things to Do at QuickBooks Connect San Jose 2018

10 free and fun things to do at QuickBooks Connect San Jose

We were going to call this the Insider’s Guide to Managing Cash Flow at QuickBooks Connect San Jose. But really, who doesn’t stop and turn their heads when they hear the word “free”? Of course, you paid for attendance and travel. But, as your cash flow forecasting advocates, we wanted to suggest a few cost-effective ways to make the most of every minute:

1. Plan ahead

Go to the QuickBooks Connect San Jose 2018 event page and see who’s exhibiting. If there’s a company you don’t want to miss, reach out ahead of time. In most cases, they’ll be willing to set up an appointment. (PayPie will be at booth 12-A. If you’d like to reach out in advance, please drop us a line.)

Another way to make your list is to check the QuickBooks App Store reviews to get unbiased, first-hand accounts. Furthermore, keep your primary business goals top-of-mind and use them as a filter for connecting with vendors and selecting informational sessions.

QuickBooks Connect San Jose Stage

Research the speakers and their backgrounds as well. This will help you know who you want to see the most, plus it’ll give you plenty of ice-breakers and conversation starters.

Did you know that MBA star Alex Rodriguez also owns a successful real estate investment firm? Or that Dylan’s Candy Bar founder Dylan Lauren is the daughter of fashion designer Ralph Lauren? And, yes, Mindy Kaling is that girl from The Office.

Several speakers are also authors. Check out their books ahead of time online or there’s even still time to see if your local library has a copy. (Note: If you want to get your book signed, your librarian will kindly ask you to purchase your own copy.)

Want to see if influencers and peers are attending? Visit their blog and social accounts or reach out. Let them know you’ll be there. If possible, set a meeting time instead of relying on your paths meeting in a sea of more than 5,000 attendees.

QuickBooks San Jose Convention Centre

2. Download the event app

Time is money. If anyone understands this, Intuit does. This is why they’ve created a QuickBooks San Jose 2018 Event App to help you plan your schedule and keep up with all the latest information. (Apple App Store | Google Play)

Insiders also advise arriving early to scheduled events to ensure you get your seat. These sessions are first-come, first-serve only. In between sessions, scout out the booths and influencers you want to meet.

3. Say, “Hello”

There’s a reason it’s called QuickBooks Connect. The entire event is designed to bring accountants, business owners and tech experts together. It only takes a second to smile and say “hello.” And make sure your name tag is easy to see. From the exhibit hall to the breakout sessions, there’s no shortage of opportunities to get to meet new people.

Keep your business cards handy, too. Although technology continues to astound, the simplicity and effectiveness of business cards have yet to be outdone.

In their Insider’s Guide to QuickBooks Connect Sydney, Receipt Bank shares a quote from CPA and attendee Sam Rothberg that captures the essence of making connections:

“We all have great knowledge of our industry and we’re all still learning a lot about different areas. Don’t feel like you’re less a person than anyone else. Whoever you’re sitting next to at any of the areas you’re gonna go to, just introduce yourself, talk to them, ask them questions, I’m sure they’ll do the same.”

2018 Small Business App Showdown

4. Meet tomorrow’s industry and tech leaders

QuickBooks Connect San Jose showcases both the Global Firm of the Future Contest and $100,000 Small Business App Showdown.

Held the evening of November 5, the Small Business App Showdown shines the spotlight on 10 of the most promising new QuickBooks Online apps. Each company will appear on stage and a winner will be decided that evening. There will also be an exclusive app finalist section within the exhibition hall.

Shameless plug alert: PayPie is beyond thrilled to be one of the 2018 App Showdown Finalists.

The Firm of the Future Finalists from Australia, Canada, India, the United States and United Kingdom will all be in attendance and the Global Firm of the Future Finalist will be announced on November 6. In addition to being savvy businesspeople, they’re also outstanding networkers and influencers.

Firm of the Future 2018

5. Ask questions

Asking questions is the single most important habit of innovative thinkers. Whether you’re in a small group discussion or breakout panel, you’re here to learn and trade ideas. When it’s time for questions and answers, be a participant. You’re there, in person and so are your fellow experts. Even if you’re an introvert by nature, challenge yourself to speak up.

Pro tip: Bring a pen and paper. Write your thoughts down during the event and prep your question in advance of raising your hand. It’s a good way to add a filter and an extra level of polish.

QuickBooks Connect Exhibitor Hall

6. Keep an open mind

QuickBooks Connect San Jose is defined as, “An event for dreamers and doers – those with passion and drive who blaze their own trails to business success.” In outlining their top 10 tips for attending, Chaser eloquently summarizes:

“Coming into QuickBooks Connect with strongly held preconceived notions about ways of working or which apps are right and wrong for you and your clients, can be dangerous. At best, you’ll waste the time and money you spent on attending. At worst, you may completely miss huge opportunities for your firm and clients and lose your competitive edge.”

7. Be social

Participants and attendees aren’t just active at the event, there are also many conversations to join online — before, during and after the event. Build your tribe and get connected by following:

These are the main accounts. You can also use them as a starting point for discovering other industry peers and influencers. If you’re unable to attend, following the main social accounts and hashtags is also a way virtually experience QuickBooks Connect. Intuit will also be streaming live from the event.

8. Score stellar swag

Stickers, t-shirts, headphones, notepads, stress balls and more — you name it, you’ll find it here. If there was a swag hall of fame, QuickBooks Connect San Jose would already be an inductee. A word of caution: Most airlines charge for checked baggage these days. If you’ve got a serious swag habit, leave room in your carry on bag when you’re packing.

9. Schedule downtime

Booths, speakers, events. Lions, tigers and bears… oh my! Even the most seasoned event goers need to plan breaks. Be sure to give yourself time to take a deep breath, gather your thoughts, remember what day it is…

QuickBooks Connect is incredibly exciting and engaging. However, it’s not an extreme endurance challenge. (Unless you make it one.) By taking breaks, you will still make amazing discoveries — sans the risk of life and limb and exposure to the elements.

10. Dine in

Each event pass includes daily meals and beverages. In addition to saving you time and money tracking down external sources of sustenance, grabbing a quick bite is yet another way to mix and mingle. Plus, we hear Intuit puts on a good spread. Perhaps in addition to comfy shoes, you might want to pack stretchy pants.

Last year, 98% of accounting professionals who attended QuickBooks Connect San Jose felt it would help them serve their clients even better. Although that statistic is hard to qualify on an income statement, it’s fairly substantial ROI. For three days, you’ll be mingling with some of the smartest, most talented people in your field. Get excited and seize each day!

The QuickBooks Connect, Small Business App Showdown and Firm of the Future logos are the property of Intuit and used with permission. Lifestyle images of QuickBooks Connect San Jose are also used with permission.

5 Reasons to Use PayPie for Your Cash Flow Forecast

cash flow forecast hero

Few business metrics are as important — or insightful — as cash flow. It tells you if you’re bringing in more than you’re spending and how efficiently you’re operating.

If you look closer there’s even more to see, such as how well you’re poised for future growth. Especially if you make a cash flow forecast a routine part of your financial analysis.

PayPie’s insights and analytics demystify cash flow projection. We’re a cash flow superhero. What was once a time-intensive foe is now just a few simple clicks. Our interactive dashboard provides a detailed breakdown of key financial variables — using the current financial data in your accounting software.

What can you learn or take away? Here’s our list of the top five things every business gains from using our intuitive cash flow tools:

1. Know your cash flow

A dollar’s a dollar. There’s a reason why cash flow is an unbiased and universal measure of business performance.

It’s a make-or-break metric for businesses of every size — but it’s particularly crucial for small- and medium-sized enterprises (SMEs) whose survival depends on the income earned from operational cash flow.

When these businesses fail, more than half, 60% cite issues with cash flow as a root cause. Furthermore, most SMEs only have enough working capital on hand to cover 27 days of expenses. However, businesses who monitor cash flow on a monthly basis have an 80% survival rate.

The facts speak for themselves. Keeping an eye on your cash flow shows you what’s actually going on within your business. Your cash flow statement and cash flow forecast tell you: where the money coming in, where’s it’s going out, and the rate at which it’s moving in either direction.

PayPie’s cash flow forecast and analysis helps you see the patterns in your cash flow — showing you what’s happening now and providing a solid indication of what will happen in the near future. It’s like looking both ways before you cross the street. If you take the time to assess your current situation, you’re much less likely to get hit by that bus you never noticed.

Balance Sheet

2. Identify strengths and weaknesses

Spreadsheets only tell a part of your company’s story — especially if you’re a visual learner, as most people are. Plus, few spreadsheets can show you the true story of your company’s efficiencies or clearly illustrate your revenue cycles. After all, the best way to notice a pattern is to see it mapped out in graphs and charts — rather than numbers and percentages.

Routinely performing a cash flow forecast and analysis can help you see:

  • If there are concerns within your accounts receivable and payable processes, such as consistently late payments or mistimed cycles.
  • Where your efficiencies and inefficiencies lie, in terms of:
    • How your revenue correlates with expenses.
    • Your best sources of recurring revenue.
    • Your last effective income streams.
  • How to plan for seasonal upturns and downturns.

Profit & Loss

3. Determine your financing needs

When you have a good handle on your cash flow, you not only know where your business stands, you also have a pretty strong idea of where it’s headed. As a result, a cash flow forecast helps you better plan for when you’ll need funding to seize upon growth opportunities or simply upgrade or maintain your current status quo.

To put it simply, when you know how much money you’re earning, how much your spending and when this money is being paid to you or is due to others, you have a much better handle on when you’ll need access to more cash or be able to repay lenders. No one likes a fire sale or being at the mercy of high-risk lenders.

Being prepared means knowing your choices. It gives you the chance to learn about and choose from either traditional or non-traditional lending options (or a mixture of both long- and short-term options). In fact, traditional lenders, such as banks, will even take a cash flow forecast into consideration as part of the application process. And once you’ve acquired financing, forecasting will help stay on track with your repayments.

4. Build better financial health

Just as a fitness tracker helps you build better health habits — a cash flow forecast helps you monitor your business’ financial vital signs. Our intuitive dashboard gives you robust analytics in easy-to-digest formats, making it simple to track your business’ overall fiscal health.

Is managing a business a lot like running a marathon? Sort of. In essence, the principle is very much the same. You make a plan, set goals then compare these targets with actuals. For example, if you’re working on a goal of lowering payment times from net 60 to net 30, your cash flow forecast will help you track your progress. Or, if you hit a wall, it’ll help you figure out why and how to push through whatever’s holding you back.

Routine cash flow forecasting and analysis also helps you create and refine a cash flow budget (training plan)— establishing a range of benchmarks to compare with actuals.

risk score

Our proprietary risk score, featured prominently within the dashboard, is a flagship indicator of financial health. It’s a comprehensive assessment of the determining factors prospective lenders, vendors and other third parties take into account before offering financing or extending credit.

5. Make data-driven decisions

Financial planning and business strategies are only as good as the data that drives them. Both require constant refinement, which you should always base on performance metrics and data. If you’re not iterating on your business tactics, you’re falling behind. And if you’re not using data to inform and evaluate decisions, you’re charting a course in the dark.

Confidence comes from knowing you’ve done all the hard work and you’re ready for what lies ahead. When you’re wearing the many hats of a business owner, every tool that gives you an advantage is a win. This is why we’ve created our cash flow forecast and analysis in the first place. To empower you with the information needed to point your business in the right direction.

main dashboard and ratios

Empower your business

Ready to put your data to work for you? All you have to do is create a PayPie account and connect your accounting software.

More Reading

Want to learn more about cash flow? Here are some of our top posts:

At the writing of this article, PayPie currently integrates with QuickBooks Online. Integrations with other platforms are in development. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via PayPie and Pexels. 

Cash Flow Statement and Cash Flow Forecast: Why You Need Both

cash flow forecast vs cash flow statementCash flow is a make-or-break factor for small to medium-sized enterprises (SMEs). Whether you’re a manufacturer or a service-based business, you pay your expenses and fund your business through money that comes from your operating cash flow.

Managing cash flow is crucial to ensuring that you have enough money to cover the bills, fuel growth and respond to the unexpected. However, many businesses walk an extremely fine line with only enough cash reserves to cover 27 days of expenses. Depending on the industry, some businesses only have a $7 difference between the money coming in and the amounts owed.

At PayPie, we realize that If you want your business to survive, you have to keep a close eye your cash flow using both your cash flow statement and cash flow forecast. Each tool plays a pivotal role in providing you the information you need to identify your strengths and weaknesses.

27 days of cash flow

Your cash flow statement: What it is

There are three financial statements that every business should create and review on a regular basis: your income statement (profit & loss), balance sheet and cash flow statement (statement of cash flows). (All of these statements are pulled from the data entered into your accounting software.)

Your income statement tells you if your business is earning a profit and your balance sheet compares what you own to what you owe. A cash flow statement, which pulls numbers from your income statement and balance sheet, shows how cash is being used within your business.

A cash flow statement compares inflows and outflows in three areas:

  • Operations — The day-to-day costs of producing, promoting and delivering your bread-and-butter products and services.
  • Investment — For most SMEs, this is the purchase or sale of capital investments, such as buildings, land and equipment.
  • Financing — Includes all funding activities.
    • For startups and businesses with investors, investment dollars are tracked here.
    • For businesses with shareholders, related activities are tracked under financing.

There are two methods for creating a cash flow statement: direct and indirect. If you use the direct method, you follow a cash-based accounting system where you track payments as they’re made or received. If you use the indirect method, you follow accrual accounting rules where payments are recorded before they’re received.

Five Stories Your Financial Statements Tell 

Your cash flow statement: What it tells you 

Whether you create a one every week, month or quarter, your cash flow statement shows you how much money you’re bringing in and paying out over that particular period of time.

Another way of saying this is that a cash flow statement indicates your cash position at a set point. It’s basically a summary of this equation:

Cash in (inflows) — cash out (outflows) = cash position (positive, negative or break-even)

What it lacks is any historical (longitudinal) information or in-depth analysis. However, a cash flow statement is a key building block of a cash flow forecast.

How to Read a Cash Flow Statement

income statement and balance sheet in a financial report

Your cash flow forecast: What it is

A cash flow forecast (cash flow projection) uses insights and analysis to anticipate how a business’ cash flow will perform over time. As the reporting tool for cash flow, a cash flow statement is foundational to cash flow forecasting.

A cash flow forecast helps you examine how key variables have performed in the past — in order to help you predict how they’ll behave in the future. Using operational cash flow as an example, forecasted cash flows help you delve into trends on how expenses like labor, utilities, materials compare with sales over a given month, quarter or year.

Businesses with volatile cash flow will sometimes perform cash forecasts on a weekly basis in order to assess their constantly changing cash flow position.

Cash Flow Basics — Key Concepts and Terms

Your cash flow forecast: What it tells you  

The phrase “over time” is key in defining the benefits of cash forecasting. By looking back and examining data from previous cash flow statements, you’re better able to identify:

  • Potential surpluses and deficits in your total cash flow.
  • When your incomes are highest and lowest.
  • When your expenses are highest and lowest.
  • The impact of the cycles in your accounts receivable and accounts payable.
  • How your debt levels and the costs of these debts are affecting your cash flow, how well you’re maximizing your current funding and your ability to qualify for further financing.

Knowing your current and long-term cash positions also lets you make more informed business decisions. If you’re planning on hiring, you’ll be able to predict if your business can handle the additional costs. The same is true for almost any growth initiatives, from research and development to expansion. And should you encounter a cash flow crisis, the more you know about what contributed to the shortfall will help you find the best way to recover.

Tools, like our cash flow forecast, help you take the information from your basic financial statements and make them easier to visualize. Spreadsheets are one thing, but charts and graphs give you complete picture that data points alone can’t provide. Your risk score, housed within the cash flow forecast, also gives you a reference how external lenders and vendors view your business in terms of financial risk.

Cash Flow Forecasting — What You Need to Know

The benefits of better cash flow

Businesses with a strong, stable cash flow are better able to seize growth opportunities and withstand unexpected expenses. The better your financial health, the more likely you are to secure more favorable terms with lenders and vendors as well. Not to mention, the simple peace of mind of knowing that everything’s under control.

In a perfect world, every business would be cash flow positive. But nothing’s ever black-and-white. This is why cash flow forecasting can also help a business solve cash flow problems by pinpointing problem areas in order to formulate solutions. Even businesses looking to rebuild credit benefit from cash flow forecasting. Especially, if you use your cash forecast to ensure that you’ve got the funds to schedule timely repayments.

main dashboard and ratios

Create a cash flow forecast — using your current financial data from your QuickBooks Online account.

All you have to do is register for PayPie, connect your account and run your report. Plus, there’s no charge for signing up or running your report.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon. 

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels and Shutterstock.  

Small Business Cash Flow Statistics: The List to End All Lists

small business cash flow statistics

Cash is king. Cash flow is one of the top small business killers. Money makes the world go round. You’ve heard it all. But what are the current cash flow statistics and trends to back this up?

At PayPie, we know how much foresight matters to your cash flow and overall financial health. Having the right facts at hand makes you better informed and prepared, regardless of the situation. For all the fact hounds out there, here’s our end-all-be-all list of small business cash flow statistics and trends:

There are more small businesses than any other kind of business

When you look at the numbers, it’s not just size, it’s quantity. Most businesses — anywhere in the world — are small to medium-sized enterprises (SMEs).

  • SMEs represent 99.9% of all US businesses.
  • 97.9% of all Canadian businesses are SMEs.
  • SMEs also represent 99% of all businesses worldwide.

Small business cash flow statistics and facts

If your SME struggles with cash flow, you’re not alone. Cash flow is a major concern. But it doesn’t have to be the enemy. This is why we’re committed to providing the knowledge and solutions you need to take control.

  • SMEs live and die by their operating cash flow.
  • Small businesses of all sizes consider cash flow one of their top 5 challenges.
  • Among failed SMEs, 60% cited cash flow as a cause.
  • For every $1 lent to small businesses, sales of these borrowers increased by $2.31.
  • 10 of the best businesses for cash flow include franchises, finance and insurance, health care and social assistance, home-based businesses, niche restaurants, real estate rental and leasing, retainer-based professional businesses, regulated industries, software as a service (SaaS) and service-based industries.

Read More: How to Read a Cash Flow Statement

Benchmark reports on small business cash flow

Because cash flow is so crucial to SMEs, it’s the subject of industry research and studies. The following are some of the most recent reports containing small business cash flow statistics. Thank you to all the organizations who put these together. Research is hard work and it’s even more difficult to do it well.

2017 C2F0 Working Capital Outlook Survey
(This SCORE article also summarizes the survey.)

Three-quarters of SMEs need more cash:

  • 37% of U.S. SMEs said their need for liquidity increased significantly.
  • 34% said it increased slightly.

How SMEs would use additional cash flow:

  • 33% would purchase more inventory or equipment.
  • 28% would expand operations, such as exporting to new markets or opening new locations.
  • 16% would use it to meet current obligations.
  • 10% would invest in employees through hiring, wages and benefits.
  • 9% would put the funds into R&D.
  • 4% would create contingency plans to deal with unexpected events.

SMEs and access to funding:

  • A majority said that access to traditional and alternative funding was easier.
  • There was a 40% increase in the number of SMEs using business financing.
  • 1 in 5 SMEs face difficulties in borrowing from traditional lenders.
    • 30% of SMEs feel that high interest rates keep them from using various forms of financing.
    • 16% say time-consuming and rigid processes keep them from funding.
    • Global median interest rates are 50% higher for SME loans.
  • Alternative sources of funding, like invoice factoring and other online options, will be critical to meeting the needs of SMEs.
    • Globally, there’s an unmet credit need of $2.1 – 2.5 trillion.
    • There is equal concern for both long-term and short-term funding.
    • By 2020, alternative lenders will have a 20.7% of the US small business lending market.
    • 82% of SMEs are likely or very likely to try new sources of funding.

2016 JPMorgan Chase Report
(Based on info from 600,000 SMEs.)

  • Most SMEs only have enough cash flow to cover 27 days of expenses.
  • The top quarter of SMEs only has two months of reserves.
  • As a median, SMEs have $374 in average daily cash outflows and $381 average daily cash inflows of $381.
    • While this varies by industry, the median shows only a $7 difference between inflows and outflows. (This is detailed further in the SCORE infographic included in this post.)
  • The average daily cash balance is $12,100.
  • Labor-intensive or low-wage industries have fewer cash buffer days than capital-intensive or high-wage industries.

2016 SCORE Infographic — Small Business, Credit, Capital and Cash Flow (References the JPMorgan Chase report, specifically the daily income averages.)

Cash flow, costs, the availability of credit and building revenue are all top challenges for SMEs.

It’s harder for SMEs to get approval for business financing:

  • 38% of businesses with revenue less than $5 million are approved for bank loans.
  • 70% of businesses with revenue between $5 and 100 million and are approved for bank loans.

Why SMEs are turned down for business funding:

  • 25% are due to poor earnings and cash flow.
  • 21% are due to the size of the business.
  • 19% are due to insufficient operating history (new businesses).
    • 52% of small businesses are less than 10 years old.
    • 33% are less than 5 years old.
  • 18% are due to poor credit.

SMEs are better at credit management than larger firms:

  • On average, SMEs credit scores are 48 points higher.
  • SMEs are less likely to have revolving bank cards that are 90 days past due.

Smaller banks approve more loans for SMEs

  • 60% of businesses with revenue less than $100K are approved by small banks
  • 69% of businesses with revenue between $100K to $1M are approved by small banks
  • 88% of businesses with revenue between $1M and $10M are approved by small banks.
  • 96% of businesses with revenue greater than $10M are approved by small banks.

The All-Too-Frequently-Cited U.S. Bank Study

Seen this one? 82% of all businesses fail due to poor cash flow management or poor understanding of cash flow itself. At PayPie, we’re careful to reference this statistic because:

  • The source is a U.S. Bank study conducted by Jessie Hagen. While this statistic is cited like crazy, it’s difficult to find the original source. Some citations, such as the one above, date back to 2011.
  • Checking her LinkedIn profile, Jessie was the vice president of U.S. Bank’s small business division from 2001 to 2006. So, the report was likely created during those years. This source puts the date around 2005.
  • Finding consistent statistics on small business failure rates is an equal challenge. This post also goes into the confusion surrounding these numbers.

Read More: Cash Flow Basics and Key Concepts 

Late payments are a BIG problem for SMEs

Cash flow management is all about timing inflows against outflows. When customer payments are late, the cycle gets all out of whack. Unfortunately, this is all too common in the SME universe. The following studies explain why:

2017 C2F0 Working Capital Outlook Survey

  • 24% of SMEs say that their customers are often late paying their invoices.
  • 28% of SMEs worldwide struggle with late payment.

2017 Sage Report — The Domino Effect: The Impact of Late Payments

  • 1 out of 10 SME invoices is paid late.
  • Late payments to SMEs total nearly $3 trillion worldwide.
  • Over 30% of SMEs experience or expect to experience a direct negative impact from late payments.
  • 10% of late payments are written off as bad debt.
  • SME spend nearly 15 days a year chasing payment on outstanding invoices.

2015 Wasp Barcode Small Business Accounting Report

  • 51% of SMEs consider accounts receivable and collections a top business concern.

Words of the Wise: Our Favorite Cash Flow Quotations & Our List of the Best Cash Flow Books For Business Owners

The facts on SME credit reports

The current system for evaluating an SME’s credit history doesn’t favor the businesses themselves. Business credit reports are generated by several different organizations and most business owners don’t even know where to start in terms of managing these reports.

SMEs suffer awareness issues:

Business credit reports are complicated: 

Why this matters:

  • SMEs who understand their credit score are 41% more likely to be approved for business financing.

Read More: What’s a Business Credit Report and Why Should You Care?

The facts on SMEs and financial knowledge

Honestly, unless you earn an MBA, they don’t teach entrepreneurship in schools. Most business owners learn as they go and any gaps in knowledge aren’t a reflection of personal fault. No single person can know everything. (Ok, we all know that one guy…)

  • Nearly 1 in 5 business owners don’t have separate business and personal banking accounts.
  • Only 39% of SMEs consider themselves generally knowledgeable about accounting and finance.

The numbers that prove why SMEs trust their accountants

Thanks to cloud-based small business accounting software, the internet and the modern age, it’s now easier than ever for SMEs to work with an accountant.

Read More: 10 Reasons Accountants Should Offer Cash Flow Consulting

The statistics on better SME business funding and risk scoring

While some of the cash flow statistics in this post may seem downright daunting and depressing, there is genuine hope for the future. Alternative financing options, like online and asset-based lending, are growing and technology continues to advance the cause of SMEs.

Read More: How Cash Flow Consulting Helps Businesses

Make your numbers work for you

At PayPie, we believe that the financing barriers most SMEs face simply aren’t their fault. In fact, our company began from a conversation where a small business software user asked, “Why can’t my lender just look at the reports I have in my account?”

Applying for traditional business financing can be tedious. So, can managing cash flow. Until now. If you’re a QuickBooks Online user, like roughly millions of other SMEs around the world, you can connect your QBO to your PayPie account and start analyzing your cash flow today.

Your interactive report, filled with insightful charts and graphs, will also contain a proprietary risk score derived from the same near-real-time data. It lets you know where you stand right now, instead of where you stood three months ago.

main dashboard and ratios

As soon as it’s available, our invoice factoring will let you access a global marketplace of lenders in order to turn outstanding invoices into accessible funding.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Images via Pexels.

How Cash Flow Consulting Helps Businesses

cash flow consulting stock image

The dictionary definition of information is: “The communication or reception of knowledge or intelligence.” The information we take in every day helps us make sense of the world. The same is true of your business financial information. The challenging is gathering the right data and applying it in the most constructive ways.

While a growing number of small to medium-sized enterprises (SMEs) use accounting software to track financial information, the real value is taking this information and making it more meaningful. One of the most vital tools for making financial data more intuitive is cash flow forecasting via tools like the ones provided by PayPie.

In conjunction with the right tools to manage cash flow, businesses also need cash flow consulting from accountants aiming to add greater value to the services they provide. Every business owner understands they have to comply with many levels of business legislation, like taxes. But, they also want to know how to make better short- and long-term business decisions.

Why cash flow consulting is crucial

Study after study has shown that cash flow issues are one of the main reasons businesses fail. According to JPMorgan Chase, most small businesses only have enough of a buffer to cover 27 days of expenses.

In order for a business to succeed, it has to understand exactly how money is moving in and out of the business. It has to know when customer payments are received and when vendor payments are due. As simple as this may sound, it’s actually easier said than done.

While accounting software is genuinely useful for capturing data, the real opportunity comes the tools for interpreting this data and making it more meaningful for the end user — the business owner.

Cash flow management starts by creating forecasts. It’s further improved through cash flow consulting provided by a professional accountant with the expertise to explain concepts, like the difference between cash flow and profit, and help set and evaluate goals.

Case Study: Cash Flow Consulting in the Real World

Information overload vs information empowerment

The struggle is real. According to IBM, 2.5 quintillion bytes of data are produced every day. A single copy of the New York Times contains more information than the average 17th-century Englishman would have encountered in his entire lifetime.

However, a 2016 study by the Pew Research Center, indicates that people have learned to live with increasing amounts of data and are accepting it as the norm. In fact, 67% (nearly two thirds) of respondents said that having more information at their disposal actually simplifies their lives.

SMEs who review their cash flow only once a year have a meager 36% survival rate after five years. Those who monitor cash flow on a monthly basis have a staggering 80% survival rate.

Truth: When we need to know something, most of us “Google” it. But, how do you make analyzing cash flow as easy as an online search?

Cash flow forecasting — there’s an app for that

One of the largest areas of growth for accounting software, especially cloud-based, online versions, is third-party applications (apps). These apps work with the accounting software to add greater functionality in terms of gathering and analyzing data.

PayPie’s cash flow forecasting tool helps SMEs and the accountants who serve them turn financial data into a highly visual, intuitive and near-real-time report.

Currently integrating with QuickBooks Online (with future integrations to come), PayPie’s cash flow forecast uses data visualization to take raw financial information and translate it into an interactive dashboard that breaks down a business’ cash flow and risk profile.

cash flow management main dashboard

Why spreadsheets don’t work

Humans are visual learners90% of the information transmitted to our brains is visual. In terms of visual impact, most spreadsheets just don’t cut it.

According to big data expert Bernard Marr, the problems with spreadsheets are that:

  • People don’t like them.
  • Key data is often hidden.
  • They’re challenging to interpret.
  • They don’t lend themselves to showing historical trends.
  • They’re hard to share.

Why data visualization makes all the difference

Data visualization literally lets you picture and interact with your data. For example, PayPie’s cash flow dashboard helps businesses drill down through their cash flow data in order to:

  • Clearly identify patterns and relationships in terms of:
    • Accounts receivable vs accounts payable
    • Sales vs profit
    • Income vs expenses
  • Get a clearer perspective on:
    • Cash flow
    • Risk profile
    • Overall financial health

Get the Details: Cash Flow Forecasting — What You Need to Know

Seeing is believing

Which information is more powerful? The spreadsheet or the visuals? This is the value of cash flow forecasting using data visualization.

Balance Sheet

Profit & Loss

How cash flow consulting helps accountants deliver greater value

“Every financial cycle is an opportunity to sit down and set goals and project numbers forward with your significant clients. Looking forward is not only important, but often essential to identify and avoid any looming business issues or, more positively, for identifying new opportunities too.”

—Richard Francis, AccountingWEB

As more and more data entry and compliance tasks are automated, accountants will have more time to apply financial data. Accountants are already viewed by entrepreneurs as their most trusted advisors. Cash flow consulting builds upon the advisory role by providing talking points for regular check-ups and the groundwork for better decision-making.

  • Cash flow consulting benefits both the entrepreneur and the accountant by:
    • Educating and empowering the business owner.
    • Underscoring the accountant’s expertise and advocacy.

Read More: 10 Reasons Accountants Should Offer Cash Flow Consulting

Which businesses need cash flow consulting the most?

Every kind of business, but more specifically small to medium-sized businesses (SMBs) who live and die by the cash flow they earn from the sale of goods and services. This means startups, freelancers, microbusinesses, manufacturers, retailers and any type of “-ers” you can think of.

How cash flow affects risk and credit

Cash flow is a measure of a business’ ability to meet its short- and near-term financial obligations. How well you manage your cash flow indicates how well you manage your business overall.

Prospective lenders and business partners who do their due diligence will want to know if you’re in good standing, before establishing the terms of any agreement.

A cash flow forecast from PayPie includes a risk score, ranging from 0 to 100, that reflects the key indicators used to monitor cash flow. It’s a number you can use to evaluate the financial health of your business and how others view you as well.

risk score

What businesses need from a cash flow forecasting tool

By comparing reviews of other cash flow applications, PayPie has found that SMEs and accountants are looking for a cash flow forecasting tool that’s:

  • A timesaver — Our algorithms do the work so you don’t have to.
  • Easy to use — Just connect your QuickBooks Online account to your PayPie account.
  • Cost-effective — Our cash flow forecasting tool is free.
  • Risk-free — We use the highest standards, including 256-bit encryption, to protect your data.
  • Beneficial to the bottom line — Our dashboard gives you the insights you need to optimize cash flow and make better decisions.

Ready to give PayPie’s cash flow forecasting a try? Sign up and get started today.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Image via Shutterstock.

Cash Flow vs Profit: The Difference

businessman confused over cash flow vs profit

Butterflies and moths, crocodiles and alligators, speed and velocity. There are lots of things that seem like they’re the same but are actually quite different. In the business world, the topic of cash flow vs profit continues to confound.

As advocates of better cash flow knowledge and long-term financial health, we present this overview of the Batman and Robin of the finance universe — cash flow vs profit. A dynamic duo all their own, cash flow and profit are often part of the same discussion, but each has its own specific meaning and role.

The “textbook” definition of cash flow

Cash flow is the pattern and amounts of cash that move in and out of business over a set period of time.

  • Cash flowing into a company is called an inflow, while cash flowing out is an outflow.
  • It is primarily a measure of liquidity or a company’s ability to meet its short-term obligations, such as fulfilling orders, meeting payroll and other routine operational costs.
  • It is measured across operations, investment and financing activities — with the operational or day-to-day incomes and expenses, especially accounts receivable and accounts payable, taking center stage.

Cash flow = operational cash flow + investment cash flow + financing cash flow

The primary metrics for cash flow are recorded in a cash flow statement.

More on Cash Flow vs Profit: Cash Flow Basics — Key Concepts and Terms

The “textbook” definition of profit

Profit is literally revenue minus expenses. It’s the total amount of money that a company brings in, minus the total expenses.

It’s a measure that simply determines if the company is bringing in enough sales to cover the overall cost of running the business and generate a surplus.

The variables for profit are recorded in a profit & loss statement, also known as an income statement.

Calculating profit

Profitability is a factor of gross profit and net profit.

Gross profit = revenue – cost of goods sold (COGS)
Net profit = gross profit – operating expenses

As an example, here are the numbers for Joe’s Trucking:

Joe’s Trucking earned $30,000 in revenue one month, but its COGS was $10,000. On top of that, there was another $5,000 in operating expenses.

Gross profit = $30,000 (revenue) – $10,000 (COGS) = $20,000
Net profit = $20,000 (gross profit) – $5,000 (operating expenses) = $15,000

Cash flow vs profit — the different math

One difference between cash flow and profit is that cash flow only records income when it comes in, such as when an invoice is paid. Profit is recorded as it hits the books when an invoice is sent out, instead of when it’s paid.

For instance, if the $15,000 net income for Joe’s Trucking is only accounting for outflows stemming from COGS and operating costs. However, it doesn’t reflect the impact of unpaid invoices.

So, if Joe’s Trucking recorded $20,000 in invoices issued, but none of the invoices were paid, they’d actually have a negative cash flow of $5,000.

$15,000 (net profit) – $20,000 (accounts receivable outstanding) = -$5,000

This means that while Joe’s Trucking is profitable, it’s cash flow wasn’t as healthy.

cash flow vs profit

Cash flow vs profit — there’s no direct relationship

Cash flow tells you when money is going out and when it’s coming into your company, while profit doesn’t reflect the timing of inflows and outflows.

As a result, while cash flow and profit are related, they’re not directly correlated. If one is positive, the other won’t necessarily be positive and vice versa.

It’s also a reason why businesses can get frustrated come tax time as business income taxes are calculated based on profit rather than cash flow. If it looks like you’ve made money, you’ll have more taxes to pay, even if you don’t have the money to do so.

Things to Know: 10 Best Businesses for Cash Flow 

Cash flow vs profit — the four scenarios

1. How a business can be cash flow positive and profitable

This is the best-case scenario that every business targets — positive income growth coupled with positive cash flow. It means the business has healthy sales and that its cash flow cycle is balanced so that there’s always enough to meet regular expenses as they’re incurred.

7 Ways to Boost Cash Flow 

2. How a business can be profitable and cash flow negative

A business in a rapid growth phase might be highly profitable but have a shortage of cash due to the investment needed to meet demand, such as an equipment purchase. Or, it could be that their accounts receivable cycle is out of sync with their accounts payable. Money’s coming in, just not at the right time. This is why accounts receivable gets so much scrutiny as part of a cash flow analysis.

Fact: Small to medium-sized businesses are more likely to be “cash poor” because they use their operational cash flow as the main source of business funding. They simply don’t have the reserves of a Fortune 500 company.

Cash Flow Problems: 6 Top Causes

3. How a business can be cash flow positive with no profit

This scenario is most likely for new or early-stage businesses and startups. For example, if a startup has a cash influx due to investor funding while the product or service is under development. Or, it could be a business that just opened its doors. It has the reserves to get to a starting point but hasn’t begun to record income.

Another reason a business can be cash flow positive without a profit is when the owner has secured financing to solve a lumpy cash flow. If the terms of the loan aren’t favorable, this can also lead to further cash flow struggles.

How to Read a Cash Flow Statement 

4. How a business can be cash flow negative and have no profit

Actually, you can’t be a business for very long without cash flow or profit. This is the worst-case scenario – no sales and no reserves. There’s likely a fundamental flaw in the business plan, the product, pricing or all of the above. Hint: Nobody aims for this one.

Reporting, Cash Flow and Your Business’ Financial Health

Cash flow is a stronger indicator of success than profit

There’s a reason why Batman is always the hero and Robin is a sidekick. Conspiracy theories aside, once start studying up on cash flow, it’s impossible not to stumble across the expression, “Cash is king.” Because, in the business world, it’s true.

Of course, profit helps, but the thing that matters most is having enough money at the end of the day to pay your bills. If you’re not paying attention, cash flow can be a silent killer. (Only no one’s developed a foolproof alarm like there is for carbon dioxide. A bat signal isn’t particularly effective either.)

Cash Flow Forecasting: What You Need to Know

Avoiding a cash flow crisis

Another reason that cash flow is so crucial to small and medium-sized businesses is that it’s harder for them to find short-term lending options. Even credit cards are hard to come by if you’re business is new or your credit rating has taken a hit. And traditional loans and lines of credit have lengthy application processes.

It’s also why online lending and financial tools been developed to meet these needs. Tools like cash flow forecasting that connects to your online accounting software and financing options like invoice factoring to help you get affordable funds more quickly.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

Image via Shutterstock.

10 Reasons Accountants Should Offer Cash Flow Consulting

ccountant offering cash flow consulting

If you’re an accountant who serves small to medium-sized enterprises (SMEs), why should you consider providing cash flow consulting as part of your value-added services?

If like us, you’re dedicated to giving businesses the tools they need to forecast cash flow and strengthen their long-term financial health, here are 10 reasons why you should offer cash flow consulting:

  1. Most businesses are small businesses

Globally, there are more small businesses than any other kind of business. Consider these numbers: 99.9% of all US businesses, 97.9% of Canadian businesses and 99% of all businesses in the world are small businesses.

Most accounting firms are also small businesses. For example, 90% of all accounting firms in the United States have less than 10 partners or owners.

Case Study: Cash Flow Consulting in the Real World 

  1. Accountants are trusted advisors

Like attracts like. If you’re a small business looking for a professional accountant, are you going to go knocking at the door of a major accounting firm with retainer fees as high as the skyscrapers that house their employees?

Or, are you going to look for a small to medium-sized accounting practice (SMP) that’s more reasonably priced and more likely to understand your needs?

The answer is obvious. It is also why most small businesses consider their accountant their most trusted advisor.

  • A majority (92.2%) of accountants provide basic accounting and bookkeeping services.
  • Only 77.7% offer business consulting services, like cash flow analysis and forecasting.

Offering cash flow consulting will give you an edge on the competition. At the same time, it will also help you forge stronger bonds with your clients.

cash flow consulting opportunity

  1. Cash flow is a small business killer

More than half of small businesses never make it past the first five years. The main culprit is cash flow.

  • Studies of the U.S. market conducted by Wasp Barcode have found that 33% of small businesses said cash flow was a top business challenge and 44% found cash flow a top accounting challenge.
  • A similar SCORE study indicated that 22% of small businesses said that cash flow was their main concern.

It’s not that these businesses don’t understand that they need to have the right amount of money to meet their financial obligations. Instead, they just don’t have the correct tools, technologies and processes in place.

By helping your clients master cash flow management, you’ll be teaching them vital survival skills. You’ll also be building mutually respectful long-term relationships.

Forbes Article: How SMEs Can Win the Battle for Positive Cash Flow 

  1. There are intuitive forecasting tools

You don’t have to go and design proprietary systems to create a powerful and meaningful cash flow analysis. Automated tools, like our cash flow forecasting, make it simple to create an informative, intuitive report filled with key ratios, charts and graphs.

All you have to do is connect the business’ QuickBooks Online account with PayPie, then run the report. The forecast is built using near-real-time data from the company’s QBO account. (Integrations with other accounting software and platforms are coming soon.)

PayPie Cash Flow Forecast Example

  1. Technology is changing everything

“CPAs with technology: You have the power to change your customers’ lives.”

Jody Padar, CPA, MST, Accounting Today

With the rise of cloud-based technology, these three trends are changing how small business accountants are interacting with their clients:

  • Digitalization— As more small business data is available digitally, through the use of accounting software and applications, it’s also easier for accountants and bookkeepers to access this information.
  • Virtualization — Because cloud-based technologies can be accessed from any device with an internet connection, it’s no longer necessary for accountants to physically visit clients. Accountants and businesses can work together from virtually anywhere.
  • Transformation — With the greater availability of near-real-time data, accountants are moving from generalized to specialized services.

Read More: How Cash Flow Consulting Helps Businesses 

  1. Cash flow consulting builds value

“The ability to provide business intelligence from a quick analysis of data is a miracle.”

— Geoffrey Moore, technology author and business consultant

Complying with regulations and paying taxes are services that business owners see as have-to-dos. Accountants who take the creation of financial statements one step further by producing cash flow forecasts are transforming routine tasks into recurring, value-added services.

Rather than merely reporting results, cash flow consulting is a key component in business growth. Some advisors even set up monthly consultation calls or video conferences with their clients to discuss goals and objectives — literally becoming voices in the business decision-making process.

Pro Tips: Cash Flow Forecasting — What You Need to Know 

  1. Business financing goes hand-in-hand with cash flow consulting

As you help businesses better understand when, why and how the cash flows in and out of their companies, your clients may also rely on your advice for short-term and alternative lending solutions.

In addition to standard options, like term loans, lines of credit and credit cards, you can also introduce the businesses you serve to innovative financing solutions, like invoice factoring, powered by blockchain technology.

  1. Better cash flow lowers risk

The cash flow forecasts created using PayPie’s insights and analysis also contains a risk score that summarizes and reflects several key variables linked to cash flow. This indicator shows how a business is viewed by lenders, vendors and other third parties wishing to do business with them.

Helping a business improve their cash flow also improves their risk score. With a better risk profile, businesses can access funding more easily and set more favorable terms with vendors.

Cash Flow Basics: How to Read a Cash Flow Statement 

  1. Better cash flow builds confidence

As you work with your clients reviewing cash flow, setting goals, controlling costs and planning for future investments and opportunities —you’re not only improving the business’ financial health, you’re also bolstering the owner’s confidence.

As you go through a cash flow forecast, especially the day-to-day costs involved in operational cash flow, you get a better sense of where the client’s priorities lie, which concepts they understand the most and the areas that need the most improvement.

In a nutshell, you’re able to ask the hard questions and offer informed solutions that truly benefit the bottom line.

5 Reasons to Use PayPie for a Cash Flow Forecast

  1. Cash flow consulting makes you a better advocate

“Running a small business is about the grind, the day-to-day operations and finding a way to keep your head above water. Like the shock of cold water in the ice-bucket challenge, reality can hit you hard and all of those hours picking paint colors for the office suddenly seem wasted. Small businesses inherently overlook the technology platforms that help them manage their day to day — and that’s exactly how cash flow begins to erode.”

— Stacy Gentile, Forbes Communication Council

Managing finances isn’t always the most alluring part of owning a business, but it’s fundamental for success. Cash flow consulting takes the implementation of best practices and better tools to a new level by delivering tangible results in the form of more cash. And no one can dispute the value of money in the bank.

Be a cash flow advocate — try our cash flow forecasting for QBO users today.

PayPie currently integrates with QuickBooks Online. Additional integrations are coming soon.

This article is informational only. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.

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