UNDERSTANDING CASH FLOW
Understanding and managing cash flow is a daunting task, but there are tips that small businesses can leverage to minimize the pain of the cash crunch.
HIGHLIGHTS FROM THIS EPISODE:
What do you think are the common pitfalls that you see, and how are people currently approaching their cash flow management?
So many challenges, and remember small businesses get into business because of the passion of their craft. They want to serve people through fashion, they want to be in the medical practice, they want to work in construction. They don’t want to think about how you optimize running your business. And so these challenges are ones that they don’t have a lot of time to think about. They don’t have expertise, and they’re exhausting. So, many challenges and pitfalls. One is getting paid. It seems easy. It’s quite hard. As I mentioned, for one thing it takes a long time to get paid, but there’s so many other problems.
There’s the challenge of getting paid at all. Sometimes you are just too busy to remind your customers to pay you. And the last thing… I run a nonprofit now on the side, and one of the challenges we have is we get all these pledges and then we forget to collect them, or we don’t have the time to go collect them and it’s embarrassing. Also, the other problem is it’s embarrassing as a business owner to go back to your customer. It’s an awkward conversation, and to say to talk about payment terms, you want to talk about the business and build a relationship. There’s also the challenge of do you even know this customer before they work with you? Are they credit worthy? Are they going to pay you? Are they fraudulent? You don’t know that information before you work with those customers. So getting paid is a huge pitfall and a big issue and it seems simple in this day and age, but it’s certainly not a problem that’s been solved.
We’re spending a lot of time at QuickBooks trying to solve that problem. We are obsessed with helping small businesses get paid faster, and increase the likelihood of them getting paid, and taking all the work out of getting paid. So, that’s one challenge. Another major challenge is the challenge with access to capital. As we talked about before, the vast majority of small businesses can’t get access to capital. We found that over 80% of small businesses need capital, and less than a quarter can get the capital they need to grow. And if they want capital it typically takes them over a month to apply and to go through that process, so that’s very challenging. They haven’t built a credit score like you do on the personal finance side, and so sometimes they’ll dip into their personal credit and then they’ll affect their personal credit, which has a huge downstream ramification on their life, or they just won’t have the funds that they need to continue running their business and to balance these cash flow problems we’ve talked about.
That’s another area we’ve innovated quite a bit in at QuickBooks, which has been a lot of fun. When I joined QuickBooks three and a half years ago we built a really powerful underwriting models that took advantage of… that built on the data inside the QuickBooks ecosystem. So small businesses use QuickBooks to run their business and therefore there’s a lot of data there. And so we were able to automatically approve small businesses for credit without all of that work and lead time, and increase the likelihood of them getting access to credit. So, 60% of the people we’ve lent to otherwise couldn’t get a loan. So, those are the typical pitfalls and some of the solutions we’re starting to use to address them.
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