Managing Your Cash Flow

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All businesses should report in 3 – 4 days

4 Mins

We spent years trying to get it done and we always came up with excuses as to why we couldn’t get it below seven to ten days. Then we bit the bullet and made it happen. Now it’s easy, and we all wonder why we didn’t do it before. The big plus is that now we actually close in ½ week and then have 3½ weeks (or 4½ in 5 week months) to run the business whereas before we spent 3½ weeks closing the accounts – which left ½ a week to run the business.

Two fundamental principles

  1. It’s all about materiality!
  2. It’s a mindset thing: the Friday night and the Monday and Tuesday are now very hard work for the team; but in reality we have our management accounts finished in two days, we then spend day three reviewing all of the numbers and day four focused on the reporting. 

Top tips to get there

·        Roll forward: We roll forward all of our month end MI reporting spreadsheets/models prior to month end

·        Order intake, order book and Revenue: We issue daily updates on Order Intake (daily orders received & period to date) as well as Revenue (daily revenue shipped & period to date and updated forecast to period end) – with that we reconcile Order intake, order book and Revenue throughout the month so that by the Friday night of period end this has already been locked down.

·        Margin reviews: As part of our month end procedures we have always done a very detailed margin reviews of all projects (no doubt you have something similar). We now do these every week (including on the last day of the month for the final week of the month) which means both (1) that we jump on issues in a much more timely fashion but also (2) means that for month end purposes we’ve already finished this very timely but critical review and all we do during the month end process is summarise & double check

·        Cash: We post & report on cash daily – we’ve always had a “Cash is King” attitude and hence monitor, post & review it daily. This means that we only have 1 day to post during the month end process.

·        Fixed Assets & Depreciation:  This is closed before month end. (materiality => who cares if you miss including a fixed asset in any one month end closing – it just goes into next month!!)

·        Debtors: as cash is posted daily the debtors ledger just needs a little TLC on the final day of the month and also then on the first morning of the Month End close

·        Accruals: Set accruals for all general expenses – yes occasionally we may be a little over or a little under but this just catches up the next month and it is never going to be materially out.

·        Suppliers & supplier payments: All of our payments are made on the “1st working day of the following (calendar) month” and therefore all creditor accounts are fully reconciled BEFORE month end so that these are completely outside of the month end process. Yes we receive a lot of invoices at the very end of the month BUT these are all covered either by GRNI (“Goods received not invoiced”) accruals or the general expense accruals and as such we don’t worry about not having all invoices posted and actually close off the creditors ledger on the last Friday of the month.

·        Payroll: Post ALL payroll journals as they happen during the month – therefore staff costs are already finished before month end

Stop making excuses and get it implemented!

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