Monitoring Business Cash Flow: Business Self-Audit Process & Financial Business Records

Understanding your company’s cash flow is essential to staying in business. To keep on top of things, consider audits. No, auditing isn’t just something unpleasant that the IRS does. Many successful businesses conduct self-audits as a means of monitoring their financial status.

Auditing on a weekly basis can provide a company with the foresight to avoid potential problems that could be detrimental to a company’s financial fitness. The process gives a financial administrator valuable knowledge to plan the company’s payment and collection schedule. Knowing which accounts need to be paid in full and which can be paid off in stages can help stretch a diminished cash reserve.

By neglecting to update financial records, a company could face bankruptcy for no reason other than failing to perform a simple weekly task. Monitoring cash flow is more than balancing a checkbook – it is about understanding where every dollar comes from and where it goes.

Closely monitoring cash flow forces companies to pay more attention to incoming funds and the patterns that are created. If a slow pay period is approaching, the accounts receivable department can begin to pressure slow-paying clients sooner to get the outstanding funds on time.

When purchasing goods, it helps to be aware of the time frame for the product arrival. This prevents businesses from getting available funds tied up in goods that will not be received for two months or more.

When planning a self-audit, there are certain key areas to target. The first step in the self-auditing process is to keep close tabs on the balance of available funds. Know what is in the bank and how much is available for immediate use. Work out a bare bones model of the company’s cash flow for the present size of the operation. Use the money left over to determine the growth potential of the business, and set reasonable expectations.

Forecasting sales on a regular basis can be an indicator to determine if a company is growing at its fullest potential, but also have an understanding of the bill collection process. Many businesses see the sales department as the main source of income, but that is a common misconception. While the sales department is generating potential income, the accounts receivable department is where the potential income becomes actual money.

Use the projected sales figures and the projected billing figures to generate an accurate forecast of the financial potential of the company. With this forecast, estimate the timing and cost of materials and production costs. Forecast these costs. Also determine the acceptable time period to pay suppliers and bills accrued in production.

Have a good sense of when bills are due, and take into account any discounts for paying bills early as well as penalties for paying late. Create a schedule of recurring expenses like payroll, rent, utilities, etc. This information can identify which bills can be paid at later dates, and which must be paid immediately.

Compute your company’s cash flow on a weekly basis, and project future cash flow in fifteen-day increments for the next year, as well as a three and a five-year model. Add the projected collection amount to the current funds available. Subtract production costs and recurring expenses. This will give a concise view of the company’s financial status.

Remember that the first time you analyze your financial records it can be an arduous task. The next times a self-audit is conducted, it becomes a process of updating data that already exists, and takes far less time to generate a great benefit to your company.

Article Copyright 1998 Enterprise Interactive