Farwah Jafri | January 19 2023
You cannot overstate how vital cash disbursements journal is for small and medium-sized businesses. This journal records the cash payments made through a check, e-check, or Automated Clearing House (ACH). More so, anything that deducts from your business debit account then and there goes into it. That’s why these journals are also called cash payments journals.
Businesses use cash disbursements to buy office supplies, restock inventory, pay bills, return loans, cover salaries, or pay dividends. Funds sent to lawyers or intermediaries as a fee also drop in the cash disbursements journal.
That said, let’s discover what is a cash disbursement journal, why it is vital for business success, and why every business needs to maintain this journal from day one.
A cash disbursement is a financial term for payments sent from one entity to another. These payments deduct from your account immediately and are wired or transferred to a beneficiary on the spot.
A cash disbursements journal draws a vivid picture of your business finances that is hard to visualize by reviewing accounts payable and receivable. The immediacy makes the difference here, as disbursements are not bills with a future date. Thus, this is the journal you must keep and review to understand better your business’s day-to-day expenses.
Tracking cash inflow and outflow is a must for every business. Per a recent study, 61% of business owners say cash flow struggles rob their sleep.
Fortunately, you can ensure you don’t lose your sleep over cash troubles simply by maintaining cash disbursements and cash receipts journals. The latter records cash inflows.
Losing track of where the business cash goes is among the top reasons behind businesses that go bust. Moreover, many with a robust product, solid team, and impeccable revenue stream also often fall short due to their inability to understand the cash flow.
Keeping an up-to-date cash disbursements journal gives you an insight into your business expenses to see how much you spend and where you can cut costs. In addition, the perils of not keeping a cash journal outweigh the time and effort spent, as poor cash flow often leads to missed opportunities and lost revenue.
Moreover, the inability to manage cash flow damages your relationship with your clients, partners, and employees. The cash flow mismanagement eats businesses from within and derails success-bound startups off track.
A format for cash disbursements journal is pretty simple, and it entails columns like date, check no, payee, account debit, cash credit, inventory credit, etc. All the details needed to understand where, when, and how much cash outflowed from your business.
The cash disbursements and cash receipts journals can help you assess your business progress and make better strategies for the future. The former can tell you if your company is losing too much cash relative to cash inflow.
Through these journals, you can see patterns and identify trends to understand where you spent extra or less. Remember, a successful business is a balanced business. Both scenarios aren’t pleasant as overspending money on a particular aspect can disrupt the balance, and not focusing on areas needing more investment and attention can derail your business.
Thus, you must keep an up-to-date journal and keep an eye on your cash inflow and outflow. Numbers can do wonders if you pay heed to their insights and fine-tune your business strategy per them. They can help you better manage your priorities, so you can rest assured your business is on the success track. For new business owners, one of the trickiest aspects is liquid cash management, as here odds of splurging too fast are the highest.
Many business owners think cash management is easy and doesn’t require much time. They often put the chore on the back burner and only keep a rough record of money spent and earned. It may work initially and help you cut the hassle but not a wise strategy to follow in the long run.
The best day to begin cash management is day one, and the next best day is today, as tracking cash inflow and outflow is something you cannot delay. Keep a cash disbursements journal and know where your cash goes.
Want to skip the hassle? Call Monily. We help small and medium businesses manage cash flow, know their numbers, and get tax-ready financials.
Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.