Why you need to know your cash daily

Hamish Mexted Odds & Ends

Knowing your numbers at all times isn’t just to ensure that you have enough cash to pay your bills. This information ensures that you are keeping track of your numbers and understand what is important to keep the business running smoothly. It shows that numbers matter and are vital to the success of the business.

It gives you an insight on other areas of the business and tells you a lot about your business performance. Your leadership team should be able to tell you this number daily and if you are the leadership team you should know how to get it quickly.

Knowing your cash balance opens up 4 key areas:

  1. What is happening with my sales?

The most important figure is cash sales. By knowing your cash balance, you understand the impact of credit sales compared to cash sales. Your next question is then “What does the value of cash sales mean for your cash balance and the type of customer you service? This then follows on to the next key area.

  1. What is my collection period (credit sales)?

You need to understand your collection times and the impact this has on your cash balance. For example, how does making a big sale on credit affect your cash flow and cash balance? When are you going to receive this cash from the purchaser, do we have enough working capital in the meantime or will we require a short term loan? Successful businesses know that making a sale is just part of the process and collecting on that sale is more important.

  1. What are my expenses?

The next area that a cash balance shows you is your daily expenses. These can include day to day operational expenses or bigger capital expenses. The daily movement of your cash will focus on things such as “Are we spending too much on certain items?” or “What can we use this money for instead?” Knowing your daily expenses can help you spend less on unnecessary items.

This is more common in new businesses who spend a lot of cash on unnecessary things and don’t realise this as no one is keeping track of their daily expenses. This is also seen in bigger companies, when things become too comfortable and the process is not being followed, which is why expenses are getting out of control. Keeping a track of your expenses brings awareness of such things.

  1. Finally, how much debt are we servicing?

Knowing your cash balance also makes you look into what debt you need to service and when you need to make payments. If you don’t know your cash balance at the time you need to pay your debt, then it can be difficult to make alternative arrangements. Being prepared and knowing that you have enough cash to make payments is key to staying clear of defaulting on your commitments.

Being aware of your cash balance and having a plan is vital to your business. It helps you create a tangible goal and creates good cash management habits. It helps reduce spending and keeps your team positive, motivated and focused on what’s important for the business.