Give your small business clients a cash flow crash course with their FreshBooks Reports.
Cash flow crash course—trying saying that 5 times fast! As an accounting professional, you know how important managing and forecasting a business’s cash flow is. However, it might not come as easily to your small business clients.
If you’ve ever wondered how to teach clients about cash flow, you’re in the right place. Read on to learn how to help your clients manage cash flow—and learn about their overall profitability—in FreshBooks.
Table of Contents
Start With the Basics: What Is Cash Flow?
Whether your small business clients come from accounting backgrounds or not, chances are that they have at least a basic understanding of cash flow—but it never hurts to check. Simply put, it tells you how cash flows in and out of a business.
When you speak to clients about their cash flow management, ask if they have specific questions for you. They might be a little fuzzy on the specifics around more advanced functions like cash flow projections or how to assess the financial statements in their accounting software. That’s where you come in.
Show Your Clients How to Track Their Cash Flow Using FreshBooks
When you think of cash flow forecasting or analysis, the cash flow statement is likely the first financial report that comes to mind. In FreshBooks, the Cash Flow Report includes all cash inflows and outflows, which are transactions that have impacted any Cash Accounts in your clients’ books. The Cash Flow Report is great for helping your clients assess whether they’ll have enough cash available to pay bills, the source of cash coming in, or their net cash change over time.
The Cash Flow Report is a reconciliation of the cash account. It separates transactions under 3 categories: Cash flow from operations, cash from financing (e.g., loans), and cash flow from investing (e.g., your client investing in their own business).
Help Clients See the Bigger Picture of How They’re Doing
When you really get into it, some business owners might find cash flow statements a little too complicated. While they’ll be able to get a sense of whether or not they have a cash flow problem, they might struggle with deciphering how they’re actually doing.
That’s where the Profit and Loss (P&L) Report comes in—especially if your client’s looking to self-serve. For most small businesses, the P&L Report is an easier report to assess overall financial health. You can also create custom income accounts and expense categories, making it easier for small business owners to read and understand.
The P&L Report can also aid in accurate cash flow forecasts and managing cash flow, which makes it easier for clients to see their profitability.
(Note: Accounting reports like the Cash Flow Report are available on Plus, Premium, and Select plans, but the P&L Report is available on all FreshBooks plans.)
What Clients Need to Know About Their Profit and Loss Report
In Freshbooks, all paid Invoices and Expenses can be pulled together in a cash-basis P&L Report. To run the Report:
- Go to the Reports section
- Select Profit & Loss under Accounting Reports
- Apply Filters
You can set the date range within the report to see the data by month, quarter, and year, which comes in handy for cash flow analysis. You can also create custom Income Accounts and custom Expense Categories for more personalization and clarity.
Once the date range has been set, you can start walking your clients through the report’s different sections.
Depending on your clients’ preference, you can either review the P&L Report in FreshBooks or export the file to Excel. When viewing the report in FreshBooks, you can click on the totals for each category (any blue links) to see where Expenses and Sales are coming from.
The Gross Profit section shows your small business client’s sources of income less any cost of goods sold (COGS).
If your client uses both Invoices and Other Income, you’ll see them both reflected under Sales in the Profit & Loss Report. You (or your client) can then filter the P&L to see which items and services bring in the most income.
The P&L Report helps show cyclical or seasonal sales trends. For example, if you were reviewing a full calendar year with your client, you’d be able to see slow periods or if some income sources were more successful at a particular time. Clients might find it helpful to review Gross Profit for their business planning since COGS is factored in.
Total Expenses shows all the expenses or costs to operate the business. Expenses could include rent, employee payroll, advertising, interest payments, etc.
Similar to how we looked at the revenue, you can work with your client to assess which expenses are too high and if it would make sense to cut back. Or, you might be able to help your client identify whether certain business expenses cost more during a particular season so they can plan for those in the future.
Net Profit shows your client’s net income after deducting Expenses from Gross Profit.
Walk your clients through Net Profit if they want an at-a-glance look at overall profitability. Here, you’ll be able to show how to spot patterns by looking at months where they make a profit or have a loss. Based on this, you might advise on ways they can supplement the loss or increase the net income. For example, there might be business operations they could be saving money on to lower expenses. Or maybe it’s time for them to double down on generating sales to increase gross profits.
As far as managing cash flow goes, it’s good to remind your clients that Net Profit doesn’t always equal how much cash they have remaining to spend. Instead, it reflects the business’s profitability and overall financial health.
Use Additional Reports to Hone in on Specifics
FreshBooks’ reporting goes way beyond the P&L Report to provide more specific details on things like your client’s customers or their vendors. Here’s a look at other FreshBooks reports that’ll help your clients understand how their money’s moving.
The Accounts Aging Report essentially shows which customers are taking too long to pay. Clients interested in their cash flow forecast can use it to assess how much money they expect to come in.
Accounts Payable Aging
The Accounts Payable Aging Report shows how much each Vendor needs to be paid. The Report can be grouped by Outstanding (past the Bill Issue Date) or Overdue (past the Due Date) Bills.
(Note: The Accounts Payable Aging Report is available on trials, Premium, and Select plans.)
Revenue by Client
The Revenue by Client Report shows how much revenue per customer the client is bringing in. The Report can be filtered by revenue type to show Total Billed, Total Collected, or Total Outstanding Invoices.
Your clients might use this to decide which customers they want to work with more or who they should work with less.
The Item Sales Report shows how much your client is making based on the items they sell. The Report also shows how many times each item was sold and can be used to see discounts applied.
The Report can help your clients see a direct correlation between their work and money earned. You might ask them to consider:
- Is there a service they should be doing more or less?
- Do they need to increase their service rates to meet their revenue goals?
The Expense Report gives a detailed look at how much your client is spending and where they’re spending it. There are many ways to filter the Report to help your clients tap into their financial data. Expenses can be grouped by Category, Merchant, Source, Client, or Project. They can also be limited to Internal, All Clients, or a specific Client, and if needed, filtered to a particular Project.
General Tips to Help Clients Improve Cash Flow
Your clients trust you for advice. Whether they struggle with cash flow problems or not, they’ll appreciate any way you can help them with their finances. Consider these general tips to share with your clients to help them establish a healthy cash flow. (Customize as needed!)
Keep costs down.
- Negotiate better prices with suppliers
- Find ways to reduce overhead costs and decrease cash outflow on business expenses
Get paid faster and increase cash flow.
- Improve the invoice process by setting up Payment Reminders and Late Fees and offering early payment discounts
- Use Checkout Links or FreshBooks Payments for electronic payments
Use credit wisely.
- Help your clients avoid maxing out their credit lines
- Advise them to pay bills on time to avoid late interest payment fees and have a good standing with creditors
Plan for future expenses.
- Plan for seasonal fluctuations or one-time expenses during the budgeting process
- Spot patterns and take action to prevent any future cash flow problems
Get Support When You Need It
Empowering your clients to feel more comfortable navigating their finances is a big part of being an accounting professional. But it’s essential that you have the tools you need to best support your clients.
The FreshBooks Accounting Partner Program is made for practitioners who work with small business clients. You’ll find a community of like-minded accounting professionals to connect with for anything you need help with. It also gives you access to an on-demand product training program (made for accounting professionals), so you feel confident supporting your clients in FreshBooks.
This post was updated in October 2023.