In Cash is King - part 1, I outlined the basic principles to maintaining a positive cashflow. In this article, I will explore the foundation of good cashflow management: Principle number 1.

Principle #1 is: Always, always, always know how much money you have to play with at any given point in time. Why? Because cash is the heart of the body called Your Business. Because making even minor business decisions without knowing your cash situation is like deciding to run a marathon without knowing if your body can take the stress.

In the accounting profession one of the methods we use to check the pulse of a business is by performing a Cashflow Analysis. Some software, such as Sage 50 Accounting (formerly Simply Accounting), generate a report which does this for you. The only drawback is that they all key heavily on the bookkeeping being up to date and the infrastructure containing accurate information.

Do I hear a few “That’s not happening” out there? Okay…so, let me give you a really simple Cashflow Analysis procedure that I have used myself and have passed on to my clients with great success. Ready? Here it is:

1. Obtain your current bank balance and some details of what has been happening with your account since the last time you looked at your bank account or bank statement such as cleared cheques, automatic deposits and withdrawals, etc. (Easy-peasy if you do online banking, but just as available from the bank machine, by phone… or heck, in person by asking the bank teller!)
2. Add to that number all the monies you have on hand and what you are expecting to come in today or shortly.
3. Subtract any cheques that haven’t cleared your bank account yet; and all the cash outlays you are expecting today and in the next little while. Things like: preauthorized payments, miscellaneous cash expenses, payroll, government remittances, and bills you need to pay.

The resulting number (A + B – C) will tell you whether you are in a positive or negative cashflow.   It will help you to make those impromptu decisions and motivate you to ramp up sales or get on the phone to those delinquent clients. Here is a sample Cashflow Analysis:

The analysis itself can be done on the back of an envelope or on a spreadsheet.   Most accounting cashflow management books advocate a monthly review of cashflow.   I strongly suggest a weekly cash flow analysis for small businesses (preferable first thing Monday morning).   Business owners experiencing cashflow problems: this should be part of your daily routine.

The beauty of this simple method is that once you get into the habit, it should only take you about 15 minutes to complete. It doesn’t need to be dead accurate, just reasonably correct.   As you get more comfortable with your daily or weekly cashflow analysis, you’ll become more accurate; and you’ll begin to think beyond the daily or weekly, to the upcoming month or quarter, bonus being: even more power over the financial health of your business.

Ms. Andrée Cusson is a Certified Management Accountant (CMA), a Sage 50 Accounting Partner, and Intuitive Consultant.   She provides
controllership services; management consulting; strategic alignment; tax planning; Sage 50 (formerly Simply Accounting) turnkey set up; and “work smarter, not harder” strategies and advice. Her passion for the past 15 years has been to assist entrepreneurs and individuals with fulfilling their financial goals and dreams.   Her practice is based in Oakville, Ontario, Canada.