Hey friends. Robert Band, your business finance advisor here. If I asked you your cash balance right now, would you look on your bank’s website? If so, that’s not the right balance. Why not? Because it doesn’t reflect receipts and disbursements that have come in but haven’t cleared the bank yet.
The most accurate cash balance is what your books say, not what your bank says. The books have bank deposits and cash disbursements that haven’t cleared the bank yet. They’re known as outstanding because they occurred but haven’t been recorded by your bank. So, your bank balance is incomplete.
Assuming your bookkeeper is current with entering all transactions in the books and reconciling your bank accounts, then your cash per books is the right number to use.
Another common practice I see is companies cutting payable checks and then holding them until they have funds to mail them. These are called held checks. This is not a good practice. Not releasing the checks immediately after they’re cut makes the cash balance in the books misleading and unusable. And it makes extra work for the bookkeeper to calculate the accurate cash balance.
Nothing is gained by cutting checks before you’re ready to release them. If you always want an accurate cash balance on a moment’s notice and don’t want your bookkeeper to do extra work, don’t hold checks.
In summary, if you want to always have an accurate cash balance in your books, make sure your bookkeeper does the following:
· Records each day’s bank transactions, such as ACH receipts and payments, bank deposits, and disbursements for payroll and payables every day.
· Reconciles your cash per books with your bank statements during the month or, at worst, immediately after month end.
That way, the cash per books will always be accurate and you can rely on it. Further, if your bookkeeper enters AP bills timely, then your accounts payable balance should be accurate.
So, when it comes time to pay bills and payroll, you’ll have accurate cash and payable balances at your fingertips and not have to do a fire drill to make sure you have enough cash to pay them.
The key to all of this is obvious. Good bookkeeping. Which means your bookkeeper is proficient technically and is caught up with their work. If your bookkeeper is always behind then your books aren’t accurate, which means the information you need isn’t at your fingertips. If you’re hearing a lot of excuses, don’t be misled. Being chronically behind is not a normal situation and indicates something is wrong. Don’t put up with this.
This is Robert Band, your business finance expert. Would you like better financial management that leads to better results? Then let me put the right pieces in place for you. Remember, one tip could be worth millions and profits today, through the compounding of interest, become fortunes tomorrow. So, don’t let them fall through the cracks.