Cash Tips For Small Business Owners: Your Bank Balance Is A Traitor!
Here’s a question for you…
If you needed to know what your money balance was right now, would you look to your accounting system for the answer or would you call (or log on) with your bank?
Your answer to this question uncovers a lot about whether you’ve got the cash flow of your business in hand or not.
The right answer is to get your cash balance from your accounting system. Not the bank! But that’s quicker said than done if you don’t have the advantage of the right firm of Southend accountants working behind the scenes.
You see the bank balance and the cash balance are 2 different animals. Rarely will the two ever be the same. Do not make the blunder of confusing them.
It is a prescription for failing and disappointment. You reconcile your bank balance… You do not manage from it.
A Fast Example
This example will highlight the difference between the two balances.
Let’s assume you call the bank or go online to get your bank balance. The bank says you have 10,000 pounds in your account.
What business choices are you able to now make about the amount of money you have open to you? How are you able to use the information you simply received from the bank to make vital business calls?
Are you able to go to the bank and withdraw the 10,000 dollars?
Let’s say you received a bill today for 9,000 dollars. The vendor indicated you might deduct a 2% discount (180 dollars) if you pay within five days. Are you able to write the check today? Should you write the cheque now and save yourself 180 dollars?
The difficulty here is you don’t have enough information to answer these questions. You do not have your money balance yet. You only have the bank balance.
So What's the Problem With This Picture?
The big issue here is you are not getting the real cash position right?
For instance, what if you had written a check for 8,000 dollars a few days ago? Has it cleared yet? Has it been deducted from the 10,000 dollars balance you simply got from the bank? NO!
That implies an 8,000 pounds cheque is on its way to the bank and will be deducted from your bank balance.
When it gets there, your bank balance will go from 10,000 dollars to 2,000 dollars!
I Know This Is Unsophisticated But the point I am making here is if you are dependent on your deposit account to gauge your money position at some point you are going to end up unstuck.
Paul Jackson is the author of numerous business articles and is a tax accountant in Southend On Sea and also heads up a top firm of accountants in Southend On Sea. Their address is Jacksons, 57A Broadway, Leigh-on-Sea SS9 1PE, United Kingdom Telephone +44 1702 474700
