Have you been noticing that your customers have been delaying their payments to you?  Not surprising in these times that customers want to preserve their free cash--the cash that is available to operate and grow the business.  This practice may be great for your customers (you may be doing this yourself to your customers), but it can wreak havoc with your company if you're not careful. If you have a business that depends on active cash management (and what business doesn't), you need to monitor your daily cash flow.

The value of doing a daily cash report is that it forces you to stay current posting your business transactions, something that many businesses do not do, which can lead to surprises that usually aren't the good kind.  You start with your cash position at the end of the previous day, so you need to account for all the cash flow events that occurred during the course of the previous business day and come up with your current balance.  Then each day you will track cash inflows (cash payments, credit card payments, checks) and disbursements (payroll checks, accounts payable checks) to arrive at your cash balance for today.  Seems simple enough.

There's something else you should track.  If you're not already familiar with the term, you should learn about "Days Sales Outstanding" or DSO, which tells you the average number of days it takes you to collect revenue after you've made a sale.   You can get your DSO by dividing total annual revenues by 365 (the number of days in a year for those who haven't had their coffee yet) to get the average daily sales.  Then divide your average daily sales into your monthly accounts receivable balance and voilá--you have your DSO.  Remember, if you're trying to generate cash for your business, you need to be good at collecting it.  There's a terrific little DSO calculator at http://www.opsgl.com/dso.html.  Put your own numbers in and it will give you your current DSO and also tell you how much your cash flow would increase if you reduced your collection time by 10% or 20%.  Over time you want to make sure that your DSO number is going down, which tells you that you're increasing the amount of cash your business has to operate.

Accounting is not my favorite topic, but in these times staying on top of your cash may mean the difference between surviving and failing, so get your business in order by tracking your daily cash position..