Vigilance with monitoring cash is the process of taking ownership of the cash situation in your small business. This entails a good internal control system with accounting, communicating with customers and vendors, and matching cash resources to the appropriate expenditures.
All businesses should have internal controls to deter fraud, detect theft, and preserve assets. Of all the assets, cash is the easiest to misappropriate. Effective internal controls for cash prevent the proverbial hand in the cookie jar.
Accrual accounting is the preferred method of accounting for all business operations. Any publicly traded company must comply with the principles of accrual accounting. Small business operations can choose between cash and accrual accounting for their records. Although cash accounting is the easiest to work with as a small business operation, accrual accounting will provide a more accurate picture of the financial status and affairs of any business operation.
A construction draw schedule is a financial tool used by contractors in identifying percentage of completion points in the project for the bank to advance proceeds to the contractor. The construction draw schedule is instrumental in keeping the project moving along.
Cash flow is the ability of a business to turn its product or service into cash. It is generally measured in dollars or in dollars against a time period. The simplest example I can think of is a child selling lemonade.
In business, liquidity is defined as the period of time it takes to turn assets into cash. It takes 20 minutes to turn the balance in the checking account into cash. You head on down to the bank and present a check. You get cash. But most businesses run on just more than the cash in the bank account.
Just like employees, cash has its problems too. Sometimes it calls in sick. Other times, it shows up late (actually quite often), and for some reason cash isn’t as productive, it doesn’t do as much work as you would like it to do.
For any small business operation, getting cash into the bank account is critical to survival. Without cash, the probability of success dissipates quickly. How do you get cash into the bank account? There are several sources of cash: they include capital, loans and customer payments.
