Friday, 31st July 2020 | Accounting
Quiz: 7 questions to test your cash flow know-how
Effectively managing your cash flow could save you thousands of dollars. Take our cash flow quiz and test your knowledge. We bet you’ll learn something!
Does your business look good on paper but not so much in your wallet? Your cash flow management may well be the problem. If that’s the case, you’re not alone. A study of QuickBooks customers found nearly half (44%) of small- or medium-sized businesses who experienced cash flow issues said their problems came as a surprise. Effectively managing your cash flow could save you thousands of dollars, not to mention all the stress, but you need to understand the issue first. Take our cash flow quiz and test your knowledge. We bet you’ll learn something that will help keep your business operating more smoothly.
1. Cash flow refers to the money you collect from customers and use to pay suppliers. True or false?
True. Cash flow is the money coming in and going out of your business within a specific period of time, usually one month. As you might have guessed from the word “flow”, the term refers to the movement of capital. It is not your business’ valuation or profits.
2. If your company has high revenues and high profits, it won’t have cash flow problems. True or false?
False. Even if you have ample money coming in and expect to make a good profit at the end of the year, you may still have to deal with cash flow gaps. This is when more money is going out towards expenses than is coming in from revenue. So, while your company might be doing well in general, a cash flow problem could make it difficult to cover shorter-term expenses like paying staff or purchasing inventory.
3. Profits and revenue affect your cash flow. True or false?
Not quite! Your revenue is the money you have earned from selling products and services and your profit is what’s left over after you’ve paid all of your expenses. While generating revenue and turning a profit are important to the health of your business, your cash flow is affected by your accounts receivable, inventory, and accounts payable. This is because cash flow has to do with available cash in a given time period.
4. Every business needs working capital. True or false?
True. Your business ties up cash because most employees, landlords, and suppliers expect to be paid regardless of fluctuations in your cash flow. Managing cash flow, or tracking where your cash is going, is the first step to managing your need for working capital. Luckily, labour, technology, and materials are easy to track using a standard profit and loss (P&L) statement. At the same time, the faster you can generate revenue, the lower your working capital needs.
5. One way to control cash flow is to change the terms of your invoices. True or false?
True! You might not think something so simple could have an effect on your cash flow but the payment terms and due date on your invoices can be a great tool for bringing in revenue on your schedule. It’s good practice to send your invoices out immediately upon delivering products or rendering services. You can also shorten the time until payment by offering discounts for customers who pay quickly. Finally, make it as simple as possible to pay you and accept payments online.
6. Maintaining cash flow is just about making sure you have as much money as possible coming in. True or false?
False. Good cash flow management requires a deep understanding of your cash conversion cycle. Remember how cash flow refers to available capital over a certain amount of time? Your cash conversion cycle tells you how many days your cash will be tied up, so you can predict and plan for when you won’t have money to purchase inventory or meet other expenses. If, for example, your cash cycle is 45 days, you’ll only have nine cash flow cycles per year. Your employees, however, get paid every 30 days so you’ll need to make extra working capital available every month. Maintaining cash flow is about making sure you have money coming in at the right time.
7. No matter what, businesses should avoid taking out a loan. True or false?
False! Borrowing money to handle cash flow problems is common—and smart. Running out of inventory and failing to pay suppliers or employees puts your business in a terrible light, not to mention the extra fees you could incur. If you foresee problems with your working capital, your best bet is to be proactive. If your issue is a result of the COVID crisis, visit the Intuit COVID-19 Resource Centre, a free resource for business owners. Or, consider taking out a small loan to cover your costs. There are plenty of options with competitive interest rates and simple repayment plans.
How did you do? If you got all seven questions right, congratulations! You’re a cash flow champion. For the rest of us, there’s still hope to be had. Now is a great time to brush up, make a few tweaks to your processes, and give your business a boost.
Read Also
5 ideas for stimulating sales through this pandemic winter
For Canadian small business owners, the approach of winter without a COVID vaccine holds some uncertainty. Businesses that have managed to adapt and pivot during the first stages of the pandemic face another slow season—this is especially true for those in areas retreating back into stage 2 restrictions. With more time at home, people appear to be spending more time on social media, particularly on YouTube, Instagram, and LinkedIn. (Facebook has always had strong usage rates.) Whether it’s to connect with friends and family virtually, to search for jobs, or to enjoy online diversions, it’s clear Canadians are taking to social media. This is an opportunity for Canadian small business owners. Here are 5 fresh ideas to connect with buyers, increase awareness of the business and products/services, and deepen loyalty using social media.
#1. Make ‘em laugh
Canadians are under a tremendous amount of pressure. If you can engage your followers in a fun or funny way, you’ll have a good chance of not only keeping their attention but also leaving them with a positive feeling about your company. Skip cold corporate speak if favour of messaging with a light and relatable tone. Puns and in-jokes are great but make sure your humour is relatable and uncontroversial.
#2. Run a contest
Who doesn’t like the chance to win something? Engage your audience with a contest like this one by SAOR Studio that’s helping its members to stick to their exercise regime with a workout bingo. The game is proving to be almost as much fun as a night out at the bingo hall—members are even posting their progress on social media. The big prize? Complete a line and receive 15% off on gym merchandise—a win-win.
3. Use livestreams
Nothing stops the runway for Canadian fashion brand Miik. Using Instagram and Facebook Live, the Toronto-based clothier has taken the catwalk digital and now customers can tune in for virtual viewings and Q&As with the owners. Borrow this strategy to host industry “shows'' or to launch new products.
4. Post often
Even if you’re open for foot traffic, people are increasingly hesitant to be out and about, so posting regularly is more important than ever. Get creative with your content so you don’t give your customers social media fatigue. Consider the Halifax Thunderbirds. While this Canadian lacrosse team is side-lined, they’re keeping their audience entertained and engaged with squad news, fan pictures, and anecdotes from past matches.
The National Ballet of Canada is taking a similar tack by sharing behind-the-scenes posts of dancers in their homes and offering free, live virtual ballet classes and performances. The same strategy that works for athletes and performers can build relationships with retailers. Edmonton-based New Classics uses their Instagram to showcase their ethically crafted and environmentally conscious slow fashion items so customers can window shop from their couch before ordering online.
5. Be inspiring
Tone is everything and these days Canadians are looking for brands that make them feel good. Search out and post thoughtful and inspirational (but not saccharine) statements and ideas that show off your brand voice. Take for example, Mail Chimp, the marketing platform. They’ve peppered their feed with lovely, simple animations with positive, encouraging phrases like "It feels good to put something back into the world" and "Making the most of it sometimes requires a little something extra." Choose statements that are in line with your brand voice and couch them in your own design.
Canadian small businesses needn’t fear the coming cold months. With the right social media strategy and outreach, they can meet their customers where they are—in their comfy clothes, at home.
Marketing