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Every business should know whether it increased cash or decreased cash this month. Business managers should know this about their firm each month. Small business owners know it because they watch their checkbooks. Larger firms because of the number of people involved sometimes lose track of how much money is going out and how much is coming in. This occurs when there are many people involved with ‘lost’ direction. If your firm is guilty of this, here are a couple of things to watch.
Monitor cash flow; Are you running positive or negative?
- Add all of the accounts payable checks, wires and automatic vendor or bank debits.
- Add all of the payroll costs (gross plus taxes deposited weekly, semi-monthly, bi-weekly or monthly).
- Add all of the bank fees automatically deducted from your account.
- Add up all of the incoming cash receipts.
- Add up the interest paid to you from your banks and saving institutions.
- If your monthly income statement (P&L) says you made money, but you have less in the bank than you did at the beginning of the month, go down the balance sheet to see where it is sitting.
- Did accounts receivable rise (less cash collected although recorded as a sale)?
- Did accounts payable drop (you paid off vendors and owe less at the end of the month)?
- Did you prepay some items (i.e. deposit for rent, prepay insurance, prepay debit cards)?
- Did you pay loan payments (interest on the income statement, principle comes off the balance sheet)?
- Have you been building inventory without customer orders? Building stock? This is troublesome because you are using cash on products that are not yet selling. It would make sense if you knew a customer would buy it all given his promises for your stock.
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