Tracking Cash Position

At GuildQuality, we sell a SaaS solution to home builders, developers, remodelers, and home improvement contractors. Early in our history, the bulk of our business came from developers and builders, and when the economic apocalypse hit, it hit hard and it hit fast. Monitoring cash flow became incredibly important, and the way we do it today is very similar to the way we began doing it when the real estate market started heading south in mid 2007.

Click here to access a Google spreadsheet that is similar to the one we use to monitor our cash position at GuildQuality.

Once a month, I update our (much more detailed) financial model in Excel, and use that spreadsheet when I really want to reflect on the direction of the business. But when I am interested in getting a crystal clear picture of where we are at this very moment I use a Google spreadsheet like this one. This was crucially important when money was tight, and though our position is considerably stronger today, I still look at it several times a week.

The numbers herein are make-believe, but I’m hoping the form in which they’re recorded will give you some inspiration for how you might do something similar for your business.

Some notes on the chart above and explanations for each of the columns in the “Balances” sheet:

1. Last Day of the Month. All of these numbers, with the exception of those in Row 2, represent where we were on the last day of each month. Row 2’s numbers are pretty up-to-date. Our Operations Manager keeps them updated almost daily.
2. Legend. For ease of viewing, I formatted the legend so that it displays our current Core Capital and bank balance.
3. Beginning Balance. This was our money in the bank on the last day of the month.
4. Deposits Not Cleared. Checks we’ve received but not yet deposited. We get the significant majority of our payments via credit card, but we still get some payments via check. These are generally very large customers, or customers who pre-pay for their services.
5. Debits Not Cleared. Checks we’ve written that haven’t been deposited yet. In our actual spreadsheet, we have a sheet that includes a list of all the Deposits and Debits not yet cleared.
6. Ending Balance. This is our cash position after considering uncleared deposits and debits.
7. Receivables. Money we’ve invoiced, but not yet collected. As mentioned above, we take a number of payments by check, most of which are prepayments. Our favorite customers pay promptly. Others require some follow up.
8. Credit Card Balance. We put as much as we possibly can on our credit card, and pay off the entire balance every month. If you stretch out your vendors and have meaningful payables, it would be wise to add another column for all those other payables (all that you owe but have not paid). We don’t do that, so the only payable column we keep is for our credit card balance.
9. Total Customer Deposits. This is our prepayment balance. Some companies prepay for their services, but just because we’ve cashed the check doesn’t mean we’ve earned the money. If they prepaid for a year of services for $12,000, upon receiving their check we’d immediately book it as a customer deposit, and each month we’d reduce that balance by $1,000. While the money is non-refundable, we still have work to do before we can call it ours. Total Customer Deposits is essentially a record of how much work we’ve been paid to do that we have not yet done. The cash received is an asset, but the deposits are a liability – i.e. an obligation to perform.
10. Core Capital. This is the best representation of your actual cash position, after all the checks clear, after everyone pays you everything they owe you, and after you deduct your customer deposits. I learned about Core Capital from a talk given by Greg Crabtree, and then in more detail from his book, Seeing Beyond Numbers. If you are a business owner, read this book. I repeat: READ THIS BOOK.
11. Revenue, NOI, & Operating Margin. We use the accrual method for accounting, and I like to see our major earnings/growth metrics alongside our major cash flow metrics, so I added these in.
12. Owner Distributions. It’s probably not worth adding this column in until you have some actual distributions. Or maybe you should go ahead and include it for some extra motivation.

Every accounting package offers some straightforward ways to track cash position, but we really like doing it with this type of Google spreadsheet. All the major stuff is right in one place, and having that info at our fingertips is really helpful.

Before we launched GuildQuality, I never really thought about this sort of thing, but it’s one of the aspects of the business that is critically important. And, after we put some systems in place, I’ve actually come to enjoy it. What do you do to monitor cash position?