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How to track the money in your business

“A small leak will sink a ship” – Ben Franklin

You work hard to make money in your company, but what do you do to keep track of it all? Most small business owners don’t pay enough attention to their cash. Many times, it’s just an afterthought behind all the other daily operational issues. For others, it’s a mysterious black hole where they hope the money will be when they actually need it!

It is critical for every small business owner to have a process to keep track of the money flowing through their company. Owners also need to be able to check where that money is at every phase. The dangers of not diligently doing these are:

  • Leaks: Money is wasted through unnecessary expenses or paying too much of it. This includes cash not getting collected in a timely fashion from customers or from paying bills before they are due.
  • Theft: When money is not tracked, employees may be tempted to steal it. This typically happens by writing checks for phony vendors that get cashed by a dishonest employee. When bank statements are not reconciled, it’s easy for employees to write themselves a check from the company account.
  • Profit, but no cash: The company seems to be making money, but there is never much in the bank account when it is needed. The business owner can be overheard saying, “but where is all my money?”

These are problems you don’t want to have at all, and the last thing you need is to open yourself up to any unnecessary risk. Being able to track your money gives you important information that can be used to mitigate and perhaps even eliminate that risk.

Here is what every small business needs to track to safeguard its money and future.

Cost of sales expenses

A higher gross margin gives the company a greater chance of yielding a net profit. Changes in cost of sales—including inventory costs—need to be tracked carefully.

Depending on the business, a comprehensive project management system may need to be implemented to achieve this. If there is too little inventory, fill rates will be too low, and customers will leave dissatisfied. Too much inventory could mean that cash investments will be sitting idle on the shelves, stuck inside the company.


In most service-oriented businesses, people are the highest expense. The total cost of labor needs to be tracked, including taxes, benefits, vacation time and other perks. A small business should not do payroll reporting inside their company. There are too many dangers of getting it wrong, especially not remitting government taxes on time.

Orders, shipments, and returns

If a company does not track these carefully, people will complain. Customers now have the expectation that they will know where their orders are at all times. If a company does not know where it is, they will incur the cost of sending it again (and again).

Accurate and timely client billing

Customers should be billed at the time that the product or service is delivered (not on a monthly basis). If billing is delayed, it will affect cash flow. If the billing it wrong, it will affect the customer experience and cash collection.

Cash collection

Most customers want to pay on time. In corporations , however, “things” get lost, and every company has to ensure it is paid what is due on the date required. The company needs to have a standard accounts-receivables aging report to see “who owes how much money when.” This needs to be tracked over time to determine the “days’ sales outstanding” metric.

Timely bill payment

Small businesses need to pay their bills on time. This ensures that they get the trade credit they need to run their company. Paying bills late will result in a lot of angry, time-consuming phone calls from vendors. Have a standard accounts-payable list to understand who is owed when. Vendors will appreciate being warned if a payment will not be made on time.

Monthly cash financial statements

Ultimately, this article will help tell the full story of where all the money is. Bank statements need to be reconciled with internal financial statements. It is critical not only to understand the profit and loss statement, but the balance sheet and cash flow statement as well. Get professional help on the key metrics that need to be reviewed every month.

More big data

Every small business needs to understand who their customers are, what it costs to acquire them and what their lifetime value is. Much of this can be extracted from data in a good financial accounting system.

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