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How to Do Bookkeeping for Cash Management Success

Readers of my article “7 Proven Steps to Manage Your Cash with Ease” asked for more details.

In case you missed that article, or need a reminder, here are the steps.

1. Do Your Bookkeeping for Cash Management
2. Find Cash in Your Business
3. Make Quick Fixes
4. Work on the Big Cash Management Ideas
5. Forecast Your Quickly and Easily Cash
6. Manage Your Cash
7. See Your Results on a Dashboard

This article is an overview on how do set up your bookkeeping for cash management success.

Instead of a checklist or a “how to” article, I will tell you how a client (Rebecca) and I cleaned up the her company books. The company is “The Spa,” a high-end day spa.

(The method is from a real client, but the name and type of company are different to maintain anonymity.)

The End in Mind

Rebecca was stuck at about $3 million in sales. Her biggest concern was running out of cash, even with a big credit line and healthy profits. 2-3 times a month she was almost out of money. She was losing sleep and her health was starting to deteriorate.

Rebecca wanted:

  • To know which products make her the most money, and if any are losing money
  • The details of her overhead costs
  • A cash management tool to set money aside and never worry about overdrafts

We talked about all of this being very doable, if:

  1. She has the right chart of accounts
  2. The books are updated weekly
  3. The transactions are recorded correctly
  4. Her bookkeeper updates accounts receivable and accounts payable each week

Chart of Accounts - The Foundation for Good Reports

Rebecca had a challenge that I had never seen before.

Her accountant sent her monthly financial reports with a cover letter:

“The financial statements are prepared in accordance with the tax basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United State of America.”

I quickly realized the chart of accounts was created to make it easy for the accountant to file taxes. It was not set up for Rebecca to run her company.

A good chart of accounts:

  • Uses standard accounts
  • Has custom accounts unique to each business to managers information unique to their business

We updated her chart of accounts by making a list of accounts and the product classes.

Accounts to know where the money comes from and where it goes.

Classes, or categories, of products and services that she sells.

It took about two hours to make the changes in QuickBooks.

Accurate P&L and a Clean Balance Sheet

After restructuring the chart of accounts, it was time to clean up the bookkeeping.

I use the basis of the cleanup the Profit & Loss (P&L) and Balance Sheet reports. I do this because I always find big, obvious mistakes, as well as hidden mistakes.

I explained to Rebecca these two reports are important to get right:

  1. The Profit & Loss (P&L) determines tax payments
    • Overstating income, means Rebecca pays pay too much in taxes
    • Understating income means she will not pay enough in taxes. This puts her at risk of penalties, or even worse, criminal or fraud charges
  1. The Balance Sheet keeps track of ownership, assets, and liabilities
    • Rebecca has two partners, who each own 20%. Rebecca owns 60%. Their need to maintain their ownership to pay the right amount of tax and share the right amount of profit. 
    • The company needs to know what its assets are so it can borrow money at times.
    • The liabilities keep track of how much the company owes.

Rebecca reacted with shock and disbelief that we’d need to find mistakes and correct them. She asked me,

“How will we find the mistakes?”

I told her that the answer is simple: Patterns.

We would look for patterns over time, and while we were doing that, we would also look for any interruptions in the pattern.

We started with Profit and Loss (P&L.) We looked at:

  • The last three years, by year. This gave us an idea of the annual revenue trends.
  • The last three years, by quarter. This showed us any seasonal trends.
  • The last three years, by month. This showed how the revenue and income rise and fall from month to month.

We did the same with the Balance Sheet. It gave Rebecca an idea of how key important categories changed over time. She was particularly interested in:

  • The size of the inventory
  • The amount of debt
  • Cash balances
  • How much The Spa was owed

Looking for Mistakes

I showed Rebecca two “pattern interruptions” that seemed out of place:

  • Sudden changes in the numbers, returning to a consistent level the quarter or month after the change
  • Categories that suddenly had no expense or value, after having a steady amount over time. Sometimes they came right back, and sometimes the expense never re-appeared.

Rebecca knew the business so well that she could look at the numbers and say, “This just doesn’t look right, David.”

Every time something didn’t look right, we would dig a little deeper.

Digging and Digging and Digging

QuickBooks lets you click on a high-level number and then shows you the transactions that add up to that number.

Sometimes there was nothing wrong, it was a change in the business.

We also found a lot of mistakes:

  • Increased expenses and lowered income
  • Unreconciled bank accounts from the previous year
  • Clients without invoices or with incorrect invoices
  • Bills not entered to be paid, or entered incorrectly
  • Expenses and income marked “unknown”
  • Revenue in the wrong categories
  • Revenue in the wrong month

There were other mistakes, but those were the big ones.

We fixed most of the mistakes we found. There were entries that Rebecca just could not identify.

We looked for more questionable patterns after the changes were made and made a few more fixes.

We went through the Balance Sheet and used the same process of looking for changes to patterns. This was faster, but some of the changes a had a bigger impact on the business.

Lessons for Rebecca

After our bookkeeping changes Rebecca felt uplifted and more secure in understanding her business and what it takes to have good financial reports. Here is what she learned:

  1. Reviewing the financials was a good use of time. The thousands of dollars of unpaid invoices she found to collect would more than compensate her for her time and my time to do the review.
  2. The Spa will run better when Rebecca regularly reviews the financials and understands what they meant.
  3. There will be more time to focus on what is important. Reviewing the books was a pro-active way to see problems and fix the root cause.

“David, this takes way too much time to do regularly.”

Rebecca told there was no way she could do this every month, let alone every week.

I smiled sympathetically and told her, “I absolutely agree. This took way too much time to do this every month. Let me ask you a question: When is the last time you did a review like this?”

Rebecca: “Never.”

Me: “And how long have you been in business?”

Rebecca: “Seven years.” (A look of understanding came over her face). “Do you mean that I had seven years of problems we dealt with today and that if I would do this regularly it wouldn’t take so much time?”

Me: “Yes, Rebecca! You learn quickly.”

Rebecca:” What do you recommend?”

Me: “You should do a weekly review. You can do it with your bookkeeper. You will see and correct the mistakes, so there will be fewer each week. I’ll be with you the first time and it won’t take as much time. Each review will be faster. My clients take about 30 minutes per month to review the books with their bookkeeper, finance manager, controller, or CFO.

Do a weekly review every week for a month, and then do a review every two weeks for another month. If you are not finding too many errors, try a once monthly schedule. If you start seeing a lot of mistakes, go back to every two weeks until the number of mistakes goes back down.”

Rebecca: “So once we stop finding a lot of mistakes, can I just forget about my reports and finances until it’s time to review them again?”

Rhythm of Your Business

Instead of immediately answering, I asked Rebecca more about her report review process.

She told me that the bookkeeping was always too far behind to look at reports regularly.

We came up with the following list of reports she wanted to review:


  • Sales by class
  • Expenses over $100
  • Promotion or special sales results


  • Sales by class
  • Profit & Loss by week for the last eight weeks
  • The results of each promotion on sale by week since the beginning of the event
  • Any debt payments or distributions to the business owners

Rebecca realized that her daily and weekly reviews would keep a pulse on the financial heartbeat of the company. It would help her find bookkeeping errors and fixed immediately. This meant the monthly review would be less painful.

I explained that my clients take an hour per month to do a formal financial review. About 10-15 minutes looking at patterns and finding mistakes. The rest of the time is spent:

  • Understanding what is working in the business
  • Deciding on day-to-day changes to the operations to improve the financial results
  • Planning future activities to improve the financial results or cash resources

“Hard, but worth it.”

Rebecca was feeling weight come off her shoulders and she knew she would sleep better that night. She was finally going to understand the financial health of The Spa.

Rebecca acknowledged that all the hard work was worth it. She would come in tomorrow looking forward to the daily results.

Your Unique Business

Almost every company that is in financial trouble is missing accurate and up-to-date bookkeeping. The same is true for companies that are profitable but cannot grow their business or never seem to have enough cash.

You probably have unanswered questions about implementing bookkeeping changes that will help your unique business. Your current employees, accountant, bookkeeper, or financial advisor may be able to move you forward.

If you do not feel like they can help, reach out to successful business owners in your area and ask for referrals to find someone who can do this type of work. If you want, contact me and I may be able to help or refer you to someone in your area.

What are your experiences with implementing cash management systems? What additional questions or comments do you have? Your questions or comments may prompt me to write a new article you can use to improve your business.

The easiest ways to contact me is at [email protected] or on LinkedIn at  to introduce yourself, share ideas, or ask me questions about managing your businesses cash.

David Safeer helps businesses implement cash management systems that create business breakthroughs. He founded The Cash Management Project in November 2018, to help businesses manage and optimize their cash resources.  David writes, teaches, and works with diverse companies around the world.

Copyright © 2019-2020 David Safeer International


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