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

Digital transformation for small businesses

It’s a difficult time for Canadian small and medium businesses (SMBs) looking to maintain their market share. The usual challenges like cash flow, regulatory adherence, and beating out competitors are even more intense in the shadow of COVID-19. Luckily for business owners, one of the most effective ways to stay relevant—digital transformation—will actually improve your position with all these, even during the pandemic. If you’re looking for a way to boost your business in this chaotic time, read on.

Understanding digital transformation

Digital transformation is a phrase used to describe the process of deploying digital technology to solve business problems. Having a website falls under this umbrella, but so too does using cloud computing, application (ie. “app”) development, and the use of a customer relationship management (CRM) tool. Part of the transition involves taking previously manual processes to the digital realm, but it’s important to understand that this change is not simply about hardware or software. A digital transformation will also result in a positive change to your business’ culture.


Why digital transformation matters

If you’ve been in business for a while you might feel like there’s always a new must-do on the horizon. In part, that’s the nature of business but there are some very compelling reasons to take your digital transformation seriously.
In an effort to understand the impact of digital technologies on small and medium-sized businesses, financing company BDC has engaged in five years worth of research. Their results reveal six major trends reshaping Canada’s business landscape:
  • The workforce is aging
  • The millennial generation has entered the workforce
  • The population is increasingly culturally diverse
  • Virtual marketplaces are growing
  • Business activities are increasingly automated
  • The rise of the data economy
Clearly, there’s a profound shift taking place—a shift that your business must acknowledge and respond to if you wish to remain relevant.

You need to evolve—now

There’s an old saying, evolve or die, that’s as applicable to business as to baboons, and there are very real consequences for failing to bring your organization up to speed.
  • You’ll increasingly lose business to competitors
  • You’ll be less efficient, and therefore less financially strong than competitors
  • You’ll be less attractive to employees
  • You’ll eventually become obsolete
It’s not a pretty picture. Fortunately, a digital transformation can bring you up to speed to meet the changing Canadian business landscape.

Here’s what to invest in

If all this feels overwhelming, don’t despair. Although a digital transformation is layered, these are tasks that can be handled in stages. There are two main perspectives to consider: operations (including tools to increase efficiency), and customer service. Keep these in mind as you prioritize your transformation.
More likely than not, your first few steps will involve your website and your online presence in general.
  • Website - Now is the time to review your website. Make sure your content is relevant and presented in a user-friendly way. Put product information and details online so your customers have access to everything they need. Get rid of any outdated code or technology (see ya, Flash!). Use popular media like video. Make buying simple, straightforward, and safe. Recognizing the rise of mobile, make sure your website is responsive (meaning it is painless to view on a phone) and, if appropriate, consider building an app.

  • Online presence - At a minimum, your business needs to be on Google and social media. People are increasingly researching online before they buy, so make sure they can access your hours, information, and customer ratings. This is even more important during this pandemic. If you’re a restaurant, for example, your menu, hours, ratings, and service options need to be online. For shopping sites, include your delivery details. Give customers the opportunity to ask questions and have them answered. You must meet your buyers where they are, so put in the time to find out where is most convenient for your customers to ask questions.

Connecting to corporate culture

Undertaking a digital transformation isn’t just for big businesses. It has a bottom-line impact for small businesses, too. Just remember that companies that pair these changes with a clear strategy, employee training, and a culture of continuous improvement do far better than those who skip this step.

A digital transformation requires a new set of processes and plan for success. Provide training and encourage curiosity. Not only will this improve the experience of your employees, studies have shown that companies that engage with this shift show higher profits.
Digital transformation is a requirement in the current Canadian business landscape. With a considered strategy, these changes will benefit your customers, your employees, and your bottom line.  


Cheat sheet: Canadian government support for individuals during the pandemic

Canadians in all corners of the country have been partially or severely impacted by the COVID-19 pandemic. If you are trying to find out what resources are available to you to help you, here is a summary of resources from the Canadian government as of June 2, 2020. 

Avoiding layoffs, rehiring employees & creating new jobs

Canada Emergency Wage Subsidy (CEWS) - The Canada Emergency Wage Subsidy (CEWS) supports employers that are hardest hit by the pandemic, and protect the jobs Canadians depend on. The subsidy generally covers 75% of an employee's wages – up to $847 per week - for employers of all sizes and across all sectors who have suffered a drop in gross revenues of at least 15% in March, and 30% in April and May. The program will be in place for a 12-week period, from March 15 to June 6, 2020.

Increased Canada Child Benefit - An extra $300 per child was delivered through the Canada Child Benefit (CCB) for 2019-20. This benefit was delivered as part of the scheduled CCB payment on May 20.

Extra time to file income tax returns - The due date for filing individual 2019 income tax returns has been deferred until June 1, 2020. Any new income tax balances due, or installments, are also being deferred until after August 31, 2020 without incurring interest or penalties.

Mortgage payment deferral - Homeowners facing financial hardship may be eligible for a mortgage payment deferral of up to six months. The deferral is an agreement between you and your lender. Typically, the agreement indicates that you and your lender have agreed to pause or suspend your mortgage payments for a certain amount of time. After the agreement ends, your mortgage payments return to normal and the deferred payments—including principal and accumulated interest–are added to the outstanding principal balance and subsequently repaid throughout the life of the mortgage. To know if you are eligible for a mortgage payment deferral or to learn what options are available, contact your lender.

Temporary 10% wage top-up for low-income essential workers - All provinces and territories have confirmed, or are in the process of confirming, plans to provide wage top-ups for essential workers. This government funding includes up to $3 billion in federal support to increase the wages of low-income essential workers. Each province or territory will determine which workers would be eligible for support, and how much support they will receive.

Special goods & services tax credit payment - A one-time special payment through the Goods and Services Tax credit for low and modest-income families. The average additional benefit will be close to $400 for single individuals and close to $600 for couples.

Extending the Work-Sharing program - The maximum duration of the Work-Sharing program has been extended from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.

There are also over a dozen support initiatives for students, recent graduates, seniors, and indigenous peoples. These can be found on the Canadian government website.


Personal loans vs. second mortgages: Weighing your options

If like many Canadians, you find yourself in need of money from time to time, there are a few options out there you can consider. Some homeowners take out a second mortgage—essentially a lump sum paid in fixed installments that uses home equity as collateral—while others consider a personal loan, an allotment that may be secured with collateral or unsecured.  Read on to learn more about each and determine which is right for you.

What's a personal loan? What's a second mortgage?

Before you choose your product, it’s crucial that you understand the parameters of each. A personal loan comes in a lump sum and you agree to pay it back in installments over a certain period of time. With an iCapital loan, the term ranges from nine months to five years. Personal loans can be secured or unsecured, a term that refers to whether or not you put up collateral against the loan. With a secured loan, the collateral mitigates some of the lending institution’s risk so you can expect to get a lower interest rate.

A second mortgage is a loan you take out against the value of your home. Canadian homeowners can borrow up to 80% of the appraised value of their home, minus any balance on their first mortgage. A second mortgage is, by definition, a secured loan.

Which is better for you?

These two lending options share some of the same benefits. With both a personal loan and a second mortgage:

  • You receive the money in a lump sum    
  • You can use your home equity as collateral    
  • You can pay back the balance in installments

The similarities, however, end there. Consider the following:


Very little paperwork is required to apply for a personal loan—usually just basic documents to verify identity and income. In fact, the process takes around 10 minutes and is fully online. In contrast, the process and paperwork to apply for a second mortgage are nearly as daunting as getting the mortgage in the first place. Applicants should expect to gather at least two years of financial documents.   


If you apply for a second mortgage, you can expect to wait several weeks for an answer. With a personal loan, you’ll get an answer within 24 hours.     


With a second mortgage, you’re borrowing against your home equity. Unless your home is paid off in full, you’ll need to continue to pay both mortgages simultaneously, and if you default you could lose your home. If you don’t want to involve your home in the debt, you can apply for an unsecured personal loan or, alternately, a secured personal loan with something else as collateral.    


With a second mortgage, you might have to pay for costs like a title search, title insurance, appraisal, and other legal fees. There are no such costs associated with applying for a personal loan.   

Loan amount 

If you decide to take out a second mortgage you may be eligible to borrow up to 80% of the value of your home. Personal loans are generally $45,000 or less.

When choosing between a second mortgage and a personal loan, consider all your requirements. The best option for you might be determined by how much you need and how quickly. If you’re looking at borrowing more than $45,000, a second mortgage may be the best way forward. But if you’re on a tight timeline and seeking less than $45,000, it’s hard to beat a personal loan.



Ready to re-open: Best practices for restaurants

As the number of COVID-19 infections declines across Canada, provincial governments are beginning to implement phased reopening. This hopeful step has restaurants across the nation beginning to prepare, be it mentally or physically. Given that this is new territory for everyone, what should the preparations entail? Read on for the best practices you should follow to ensure everyone’s health and safety as you reopen your restaurant.

1. Document a reopening plan and train your staff

A safe and seamless re-opening depends on communicating and implementing the very best safety measures across your entire operation. Lessening restrictions depends on tightening precautions and that will require the participation of all management and staff. Don’t leave things to chance. Even “obvious” measures might be overlooked in the chaos of a relaunch. Write down your plan in detail, including all safety precautions, and communicate your expectations to everyone in your organization. Revise and brief your staff as required.

  • Write down your plan
  • Train all staff on safety measures
  • Revise and re-train as necessary

2. Make a physical distancing clear and easy

If you had an incorrect idea of what six feet (or two metres) was before COVID-19, you’re not alone. People don’t typically measure their personal space this way and it can be hard to gauge distance on-the-fly. Before you welcome customers back into your restaurant, use tape to mark six-foot intervals on your floor and indicate the flow of traffic with arrows. If possible, move furniture like booths or table apart and install physical barriers or close off those areas that are too close together. Post signage at the door and inside reminding people of physical distancing requirements and restrict the number of people allowed inside at once.

  • Post signs
  • Mark floors and traffic flow
  • Move or block off seating areas

Most kitchens are fairly tight quarters to begin with. Minimize physical interaction by setting up staggered task stations as possibly creating additional shifts to reduce the need for so many people in the kitchen at one time. Mark intervals on the floor as a reminder, and make sure customers and delivery drivers are kept separate from the cooking areas.

  • Mark floors
  • Create staggered stations
  • Restrict access

3. Go minimalist

Once customers return, there are a few adjustments you can make to enhance safety. If possible, prop open exterior doors for fresh air and interior doors to reduce surfaces that require touch. Remove menus, flowers, condiments, and cutlery from the tables and instead provide them once customers are seated. Use technology for remote ordering and table selection, and reduce person-to-person contact with electronic payment.

  • Prop open doors
  • Remove table-top items and provide on an as-needed basis
  • Use technology

4. Keep it clean

Those in the restaurant business should already be familiar with sanitation protocols but during COVID-19 these protections will have to be intensified. Here’s a step-by-step checklist that should help you establish and maintain a spotless restaurant.

  • Do a deep and complete clean of the entire establishment prior to re-opening
  • Clean the credit card machines, cash register, headsets, or other shared equipment
  • Establish and record an updated cleaning schedule especially for high-traffic areas like the washrooms, counters, and door handles
  • Clean tables between every seating
  • Remove and sanitize condiment containers, menus, or other tabletop items between customers
  • Make hand sanitizer available at the door, on tables, and at the cash
  • Use only approved disinfectants

5. Health and hygiene

Alongside the signs about physical distancing, post a notice explaining that customers showing signs of COVID-19 (fever, runny nose, or cough) may be refused entry to your establishment.

Your employees will need to maintain extremely high health and hygiene standards. These best practices will help your day-to-day operations:

  • Stagger start times
  • Implement health check screening at the start of every shift and send sick employees home
  • Fully train all staff on how and when to wash hands, how to maintain physical distancing, and to avoid touching their faces
  • Provide lockers or sealed bags for personal items
  • Provide PPE and gloves when applicable
  • Make hand sanitizer available at the door, on tables, and at the cash
  • Establish a point person for every shift to ensure all protocols are being followed

Restaurants and other businesses across Canada are starting the slow process of re-opening. Check this Restaurants Canada Reopening Tracker to determine the rules for your region and then proceed following these best practices for a successful and safe transition.



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