It is likely that your position as an accountant for a small business will expose you to handling cash transactions. You have intimate knowledge of what your small business client’s bank account looks like and the necessary information to estimate what it is going to look like in the future. As an accountant, you’re in a strong position to project future cash flows for clients and help them strategically approach cash flow management.
Prior to Cash Transactions
You may be pulled into certain business activities that let you know when cash flow impacts occur. If you are involved in discussions with prospective investors or lenders for a client, you know when and how much a cash inflow may be before it arrives. If you are involved in drafting contracts, you know details about cash activity and due dates prior to any actual activity happening. If you are involved in the budgeting process, you know dollar amounts and timing of the transactions.
As an accountant, you have control over the payment process. Internal controls may dictate that no payment can be made without your action. For vendors paid by check, you anticipate the amount of time between when the check is written and when it is cashed. For credit card transactions, you manage cash flows and plan the payoff of the statement amount. You control the use of vendor due dates to maximize the amount of time cash is held.
In addition to knowing when bills are paid, you know which assets are being converted to cash. It might be tough to estimate when all receivables are still collectable, but you have possession of receivable aging schedules and prior collection history. Any tax refunds or return payments flow to you, and there is a chance you are notified about this incoming cash flow. If you perform bank reconciliations, you know when interest is declared and received in the accounts.
Converting Accrual Information
Financial statements prepared using the accrual method of accounting are often required by outside parties. Your client may find this type of report is not helpful when trying to look at cash. Your accrual entries and deferral entries help make the financial results consistent, painting an accurate picture when trying to manage actual cash inflows and outflows.
Thankfully, you have insight about these accruals. An end user of the financial statements may not know what actually happened and what has been manually adjusted. However, you know every entry posted. You know which expenses were actually paid and which were accrued. Even if there isn’t a need to fully convert accrued financial statements into cash-basis financial statements, you have all the information to make a transition happen.
As the accountant assisting a small business, you are heavily involved in cash transactions. This gives you an all-encompassing view of cash inflows, outflows, and potential changes. Use this information and leverage your position to help manage your client base’s cash flows in the future.