The following is written by financial expert Philip Campbell and is an excerpt from his book, Never Run Out of Cash. Campbell is joining Kahuna next week for a free, live webinar where he will share secrets of business cash flow. Read More About the Webinar
What is your cash balance right now?
It’s absolutely critical that you know what your current cash balance is. You should be able to put your hands on this number whenever you need it. By that I mean you should know your cash balance within two minutes of needing it. When you can do that, you have this component of your cash flow process under control.
Do Today’s Work Today
The key to keeping an accurate cash balance in your accounting system is to do today’s work today. When you do, you will have the numbers you need when you need them. You will also be confident the balance is accurate.
Problems occur when you, or the person you have in charge of your books, violates this rule. The trouble begins when entering cash receipts is put off or entering invoices is delayed. “We don’t need to enter them today because we won’t be paying them for another week or two anyway.”
Perhaps you or your spouse has the job of keeping the books. You’re busy running the business, taking care of customers, and making the sale. “It’s a hassle. It’s not as important or as urgent as the hundreds of other responsibilities I have.”
So the “data entry” stacks up. It goes in the stack I call the “I know I need to do it, but I can’t do it right now” stack. Maybe it gets done once a month. Maybe it takes even longer than that…
Doing the Dishes Each Day
Compare your financial recordkeeping to doing the dishes at home. Do you (or someone in your family) do the dishes every day or do you let them pile up for days or weeks until you “get around to it?”
If you’ve gotten into the habit of putting off the accounting and data entry work, I’d like to suggest a test.
Try this test at home for one full week and wee what happens.
Here’s the test:
Stop doing the dishes.
Allow them to stack up for a full week. Save yourself the time and trouble of cleaning up after meals. After you enjoy a good meal, put the dishes in the sink or on the counter and move on to the other important things around the house. Just think how much free time you will create for yourself.
Life is good, right?
Well, maybe not. After the first day or so, a couple of thoughts start to go through your head. “I’m still going to have to do the dishes. When I do, there is going to be a huge stack and it’s going to take a long time. After a week, they are also going to be smelly and have old, hardened food all over them.”
You would be embarrassed when friends come over and see a dirty pile of dishes stacked up in your kitchen. Then after a week, isn’t it a much harder chore?
Ask yourself this question:
do most people do the dishes every day because they just love doing the dishes?
Of course not. They do them each day because it’s one of those chores that can be overwhelming if neglected for too long. Doing the dishes every day is the practice of doing today’s work today. You do it because the alternative approach is a really bad idea.
Doing today’s work today is the approach to use in your business. Specifically, make sure the books are kept current each day. This will ensure you have an accurate cash balance.
Either You Do the Work or Have Someone Else Do It
Here is a simple rule to follow to make sure today’s work gets done today.
1. You do the work
2. You have someone else do it
Those are the only two choices you have. Doing today’s work today is a more intelligent approach than piling today’s work on top of tomorrow’s work. The work must be done. Someone has to do it. That means either you do it or you have someone else do it.
Your job as a business owner or manager involves setting the performance standards, then seeing to it that the job gets done in accordance with the standards you set. You decide if you will be doing the work or if you will have someone else, such as a bookkeeper or accountant, do it. Even if you have a CFO and a full finance and accounting department, the principle still applies. If you have someone else do it, communicate the performance standards, then make sure it gets done.
You must have an accurate cash balance.
Please join Philip Campbell for a live webinar, where he will show how you can quickly know the cash position of your business, so you can avoid the cycle of a failing business.
And check out Philip’s website: Never Run Out of Cash.