Of the 28.8 million small businesses in the U.S., 20 percent fail within the first year, 50 percent in their fifth year, and 70 percent in their then year. One of the top reasons is due to cash management problems: 29 percent of failed businesses simply run out of cash.
Why do so many small businesses struggle with cash management? It starts with not understanding cash flow–the rhythm of money flowing into and out of a business. Simply put, you want more coming in than going out. The challenge for many businesses is they don’t have insight into what their cash position looks like at any given time. That’s where trouble begins.
Think of a grocer whose customers pay with cash. Maybe the cashier gives the wrong change, money goes missing from the till, or money doesn’t even make it into the till. Consider a restaurant. Daily sales are taxed pennies on the dollar. Doesn’t sound bad, right? What if nobody’s setting those pennies aside? At month’s end, the restaurant owner struggles to cobble cash together–maybe thousands of dollars–for the tax payment.
Consider these tips and tools to better understand your cash flow, which will make it easier for you to successfully manage it.
In our conversation with restaurateur turned cash management expert David Joseph, he explained to us how businesses struggle with cash management: “One of the skills that … business owners in general [lack] is cash management skills. Really understanding the flow of money in and money out,” Joseph told us. “They’re very good at getting money in, and Clover helps them do this…but the outflow of cash, which is where they have to manage that money, most business owners really lack this skill.”
To help small businesses track cash, Clover recommends two apps: Cash Log and Cash Track. Cash Log, a free Clover app, is especially helpful in retail where cash regularly changes hands. This app tracks all customer cash transactions and manager cash drawer activities to spotlight where cash is moving. Cash Track tracks cash movement from employees or registers. To use it, record the cash you assign to each register and employee at the beginning of each shift. At shift’s end, reconcile the employee’s count with the manager’s count and the shift report. Cash Track also sends daily shift reports by email or to your Clover dashboard. It even helps restaurants calculate tips.
During his restaurant days, David Joseph was once surprised by a $9,000 sales tax bill from his bookkeeper, prompting him to ask, “Why can’t someone do our sales tax the way ADP does our payroll?” He eventually answered his own question by conceived a tool he says is meant to help restaurant owners sleep at night: DAVO Sales Tax.
In Joseph’s words: “It’s automated. The Clover [app] calculates sales tax. It sends us the sales data. All of that is done automatically, and what we really do is cash management…we put a little bit of money aside [for sales tax payments] every day.”
DAVO automatically collects daily sales tax, hold the money securely, files it, and pays it in full and on time. For DAVO users, that means no more worries about surprise sales tax bills or late penalties.
Businesses often lose track of cash through fraud. That’s where another great app, Ping Me If, can help. Focused on fraud deterrence, Ping Me If provides email or text notifications when specific events happen in your business, like a payment, refund, a tip or discount that exceeds an amount you specify, deleted orders, opening the cash drawer without a transaction, and the removal of cash from the drawer.
For clever ways to reduce cash handling overall, check out CoinOut and Donate at Checkout.
CoinOut is a digital change handler. Customers receive and save their change from a transaction digitally and can get cash back to spend with your business. Or they can simply take a picture of their receipt to earn cash back. Available in the Clover App Market, CoinOut offers a 0% processing fee.
Donate at Checkout lets you collect donations at transaction’s end from customers for your charity of choice. With preset amounts for donations and a ‘Round Up’ feature, you can access reports on donations received from its online portal.
Failing to plan for the unexpected stymies cash flow. Fortunately, DAVO creator David Joseph and team figured out two simple solutions: Savings Club and Sweep and Save.
“How many times do restaurants say, ‘Oh, the air conditioner broke. The refrigerator broke,’ you know?” Joseph asked. “If you put aside $20 a day, at the end of the year, you’re gonna have somewhere around $7,000.”
An annual savings tool, Savings Club automatically sets funds aside daily and returns them to you mid-December for year-end needs. Sweep and Save puts aside a percentage of daily sales for monthly expenses and sends it back to you on the first of the next month.
“If your rent is $600 a month and you’re open every day, you can put aside $20 a day and have $600 in your account on the first of the month,” said Joseph. “You don’t have to think about it. You don’t have to budget for it. It’s done for you.” With these tools and other Clover apps, cash management is a business risk you can sweep off the table.
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