People who don’t run a business might assume managing one is a matter of simple input and output — money comes in through payments and out through expenses like payroll. All small businesses can be equated to more complicated versions of lemonade stands where plump piles of cash sit in tiny cashier’s boxes.
What a lovely misunderstanding.
For most small business owners, cash flow is not always smooth or straightforward. They can be one late invoice away from a cash flow crunch, yet still have to pay employees, cover bills, and make purchases to keep their business operating. Cash flow is always happening in real-time, so small business owners are constantly evaluating how much money they have today and how much they will have tomorrow. A late invoice should not stand in the way of a business making payroll or being able to buy supplies.
With more than 50% of small businesses failing in their first five years, understanding cash flow — right here, right now — is essential and often stressful. Questions like, “Do we have enough in the bank to pay our next bill?” or “Can we make payroll before that outstanding invoice comes through?” can lead to many sleepless nights.
“It always starts with receivables,” explains Rania Succar, SVP and Business Leader at QuickBooks Payments and Capital. “Most small businesses struggle to get the money they’re due, which leads to many downstream problems.”
One of those problems? Unfocused banking habits and an incomplete picture of the business’s finances.
To counter delays or variability in payment, owners are known to spread finances across multiple bank accounts. They often cobble together different banking services to manage the various types of finances they need to track — sometimes signing up for as many as 6-8 different services at once. There’s an “income” account, say, and a “payroll” account. (That way depletion in one doesn’t necessarily affect the flow of another). In messier times, perhaps, an owner might pay expenses out of a personal account or forgo their own paycheck altogether. Every owner seems to have their own delicate system of spreadsheets and browser tabs — each aimed at balancing money in with money out.
Now during a pandemic in which half of small businesses are expecting revenue to decline, banking has reached a bit of a judgment day. Issues with getting PPP loans from traditional banks and the inaccessibility of physical banks have heightened the urgency for a better system for small businesses, and online solutions like QuickBooks Cash are stepping up to the plate.
“A third of small businesses are telling us they want to move online,” says Succar. “It’s a lot harder to get to a bank right now.”
That’s where new products like QuickBooks Cash are coming in — to reinvent financial management for small businesses through a comprehensive fintech platform. The core benefits of online systems like QuickBooks Cash are visibility, predictability, and speed. Here’s why:
Quite simply, platforms like QuickBooks Cash put everything on one screen. Small business owners can track receivables, expenses, and payroll all at once, in one place.
Most useful in the pursuit of visibility, perhaps, is the feature of “envelopes,” which are basically sub-accounts in which owners can categorize their cash however they see fit. Envelopes alleviate the need for extra bank accounts. (Worth noting each individual envelope also receives interest — in QuickBooks Cash, for example, it’s 1%.
You could see envelopes especially useful for any business whose cash flow must be distinctly organized — like, say, a non-profit, whose donations are often required to be applied in a certain manner. Envelopes segment the business without fracturing the holistic vision of its finances.
Fintech services can utilize artificial intelligence and machine learning to help small business owners better see their future. QuickBooks Cash, for example, includes a cash flow planner that helps businesses predict cash flow up to 90 days out. QuickBooks built its forecasting system off data compiled from over 26B transactions.
You can receive alerts when cash flow is limited so you can make better decisions about how to allocate funds and actually avoid problems — liking being late on an invoice — before they occur. It’s worth noting that QuickBooks Cash allows for a meld of AI predictions and human accountability: For example, the owner of a landscaping company might know there will be heavy rains and increased revenue this quarter. They can create an event that indicates an increase in revenue to anticipate this change. Manual adaptability like this is especially critical amidst the pandemic when regulations and behavior change day-to-day.
By being able to anticipate cash flow, small business owners can more quickly and accurately decide whether they need to expedite payment from a customer, acquire new customers, or alter expenses. They’re able to save time, stay nimble, and ensure receivables are accurately accounted for.
According to Succar, small business owners often make biweekly trips to the physical bank. With QuickBooks Cash, you can do everything online, including opening your account for free.
More importantly, however, platforms like QuickBooks Cash are dramatically reducing lag times in transactions, specifically payroll, which can take a week at best to complete with traditional banking processes. With QuickBooks Cash, same day payroll is now 100% possible for qualifying users.
Same day payroll is, perhaps, the most essential optimization in small business banking. That’s because owners are so committed to paying their workers.
Explaining how payroll is so top-of-mind for business owners, Succar recalls how her own mother manages payroll at her medical office. “My mom does a crazy hack — she’ll move a little bit of money every day to make sure she has enough in payroll. She doesn’t trust herself to leave everything in the main account because payroll is so critical to her and the business.”
Although challenges have been exacerbated in the pandemic, products like QuickBooks Cash are helping to build ground for a more fruitful future for small businesses. Hopefully a reduction in banking chaos can help small businesses get paid, retain customers, and set themselves up for long-term success.