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A Daily Exercise for All Business Owners

Oct 10Doug Lombardo

There is one piece of information every business owner should know at all times, or should at least have at his or her fingertips – the amount of available cash.   This sounds very basic, and it is, but it is surprising how many business owners would be unaware of that number. And it’s not that the actual amount of cash is so important, though of course it is, but what is as important is the discipline of ascertaining that number every day.

Business owners often wear many hats, and become involved in numerous administrative and/or day to day endeavors they never imagined when they acquired or started their businesses. Of course, at B2B CFO®, we strive to enable our clients to lift themselves out of such tasks and devote their limited time to growing, and creating value in, the business. But business owners should never abandon the daily five minute exercise of ascertaining the amount of available cash. After all, cash is your most liquid asset, changing by the day, hour, or even the minute. It is the lifeblood of your business; without it, you don’t have a business. Furthermore, you can’t spend anything else – you can’t pay vendors or employees with accounts receivable or gross margin – only cash or some form of it will satisfy.

It is not only the amount of cash that matters, but also the changes in cash since the last time you checked.  Any meaningful change, up or down, should be understood and not surprise. The business owner should review daily general ledger activity in the cash account from a beginning balance (which agrees to the ending balance on the previously reviewed report) to the ending balance (current available cash). If a scan of activity reveals anything unusual or unfamiliar, someone needs to explain those items to your satisfaction. You can of course gloss over insignificant transactions at your discretion, so long as you clearly understand those items that matter.

Note that ascertaining available cash does not mean accessing your bank balance online.  Cash in the bank does not equate to available cash, which can only be retrieved from the books and records of the business and would include outstanding checks, EFT’s or deposits in transit. Which is a great segue to the next important point – book cash balance(s) should be reconciled to the associated bank balance on a daily basis, or at least on a frequency that correlates to the volume of activity flowing through the accounts. Monthly reconciliations are a necessary part of closing the books, but are of little value in the middle of a month when the volume of bank activity can hide unrecorded items or worse, some form of mischief.

Once a daily routine of reviewing reconciled cash activity is established, it should be quick and efficient, but its contribution to understanding the ebbs and flows of the business, and the peace of mind that follows from knowing you’re most volatile asset is under control , cannot be underestimated. As the saying goes, “Cash is King.” Business owners should be sure to treat it like one.

photo credit: Sole Treadmill gym via photopin (license)

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