Cash control is considered an important process in handling the finances of a particular company. It is through the process that the entrepreneur recognizes how much money has come and gone out and can hence check the current cash position quickly.
With this type of information, the entrepreneur can make data-driven decisions. This information can thereby be used to quickly recognize the results and avoid further actions that may harm its financial health.
This operation, segmented into a number of phases, has to be implemented with extreme care and caution. Thus, in this content, we will discuss the major issues that are waiting for you in this daily operation and help you overcome them.
What is cash control?
Cash control is the process of recording and tracking the inflows and outflows of money that occur daily in a company.
It provides a view of the current cash situation , allowing the manager to know the value that the business has available at that moment.
This process allows you to have real control over what happened during the day to predict profits and losses , plan investments, monitor the financial health of the business, make balance sheets and more.
Through it, it is also possible to locate inventory management errors, thefts and other irregularities .
Difference between cash control and cash flow
Cash control and cash flow are different processes that many people confuse, though they are the same thing in the accounting process: to account for inflows and outflows of money in the company. However, cash flow is a more complete concept.
Cash control is applied in the immediate analysis that aids day-to-day financial management. Cash control only takes into consideration the inflows and outflows of the business’ cash.
Cash flow goes further and also accounts for other amounts, such as accounts payable and receivable and expenses. Therefore, it serves to control all the money moved in a given period and allows for projections for the future.
That means it gives a prediction as to the money going and coming in, helping thus in the planning by a company and in its general finance analysis. The manager therefore can analyze whether the company did what was forecast or not and take proper remedies.
What are the steps of cash control?
The cash control process is long and requires a lot of attention from the person responsible for its execution. Learn about the steps of this operation below.
Opening the box
Opening the cash register correctly is the first step to ensuring that the control will be successful. Write down the date/press the start button on the virtual platform, include the initial balance for the day — including change, for example — and start selling.
At this point, it is important to record the cash fund , or initial balance , which is the amount with which the company started the day. It is there to make change, pay scheduled bills and deal with unexpected cash outflows, such as purchases of office supplies.
It is very common for people to confuse cash flow with working capital , but they are separate concepts and values. Working capital is the financial reserve that your company has to operate and keep expenses up to date.
You also need to pay attention to the previous balance , which, as the name suggests, is the final balance from the previous day. Often, it will be your initial balance for the current day, but there may be interference between the two moments.
It is a good idea to compare the values and check the actual balance to see if the information recorded is correct.
Releases
This concept refers to all debits and credits made to the cash register during the day. Transfers of money from one cash register to another, reinforcements or any change in value, including sales themselves, are entries. These include cash withdrawals and supplies.
Cash withdrawal refers to a specific cash outflow. It is an unscheduled withdrawal of money, usually for security purposes. In the case of physical establishments, it serves to reduce the amount of money in the cash register and prevent possible theft.
The change supply , also known as cash reinforcement , occurs when you run out of change at the cash register and need to put more money in the drawer. Just like the cash withdrawal, this movement must also be recorded.
Receipts
Recording cash inflows immediately is important, but these aren’t the only things to keep track of. You should also monitor expected receipts for the period, such as installments of sales payments, for example.
Payments
In contrast to the previous item, there are occasional cash outflows and scheduled automatic bills. This includes debits in rental accounts, use and maintenance of products and services, and taxes.
Proof of transactions
It is impossible to have effective cash control if you do not collect and organize transaction documents. Examples include receipts, checks, and receipts.
Cash closing
This is the time when the available amounts are checked to make sure that they are in step with the earnings and expenses incurred during the day. In most businesses, it is a daily process conducted at the end of every working day.
The ideal person to close the cash register is the person responsible for monitoring it. In a physical business, this is the cashier. Since this professional monitored the transactions during the day, it is more effective for him or her to do the math themselves.
Another important issue is to define the frequency at which the closing will be done. Note that the higher the frequency, the more difficult it is to control the numbers. Therefore, we recommend daily closing, right after the business hours are over.
Analysis of balance and result
With the closing figures, you will know what the final balance of the day was. It is the value obtained when you subtract the amount that went out from the amount that came in. In other words, FINAL BALANCE = income – expenses .
With it, you can calculate the profit and profitability of the day. At this point, you can find two types of results:
- Positive cash flow: means that there are more inflows than outflows of money. There is a good chance that you made a profit during the period. It is a reason to celebrate and understand what was done right so that you can repeat it on other days.
- Negative cash flow: This means that more money went out than came in. This could be the result of low sales or simply because it coincides with the bill payment date. Don’t despair: stop, take a breath, study and start again.
After analyzing the results, your cash control routine is complete and ready to be repeated the next day.
5 main challenges in cash control
Daily cash control is a detailed operation that is extremely important for the company. Therefore, it is necessary to pay attention to each task to avoid problems at the end of the day.
Knowing the main challenges in closing the cash register will help you identify at which stages errors can occur. Read on to understand what they are.
1. Poorly made releases
The lack of any release, no matter how small, will make a difference in the results. Letting a failure here and another one accumulate can cause great damage to the financial health of the business.
To reduce the chance of errors in records, it is best to have one person do this only, so that they do not have to divide their attention between other tasks. It is also important not to forget to include the bleeding and supply in the daily entries.
2. Incomplete information
Another common challenge is the incomplete provision of information. It is impossible to fail to account for any amount, identify which transaction generated each entry, or note the date and period of the cash closing.
3. Lack of control of all stages
Who is responsible for the process? What tools are used? Identifying each step and monitoring it separately allows you to find potential errors, correct them and even optimize the entire operation.
4. Slow and laborious processes
If you keep track of the steps, you will see that many of the processes may be slowing down. There are many digital tools available to optimize and streamline this work. Bureaucracy can also cause errors when recording values.
5. Manual errors during the process
Errors are very common when a process full of details is done manually. Therefore, using systems that automate tasks can reduce or even eliminate the chances of errors.