Are You “Buying” Sales? –Dickeson
When the editor in the June issue of Business 2.0 wanted to seek out the 10 most successful electronic firms, he or she selected cash as the primary criterion. “…Cash flow is much more difficult to fake with accounting tricks, but also because the ability to generate cash is ultimately the key to any company’s prosperity. . .”
Still, in a recent survey, we read that accounts receivable are more than 50 days old for 90-plus commercial printing firms. Is this the typical cash realization from printing? Yes, I think it is. Does it mean that commercial printing companies place less value on cash as a key to their prosperity? No, I think not.
What this means is that the firms in the survey had to give extended credit in order to get sales. They had to “buy” sales for their company to have business. Agree? It’s doubtful if those entrepreneurs recognized this truth because cash flow is not a prime reporting factor. We throw a dust cover over this elephant in our living room and ignore it.
Find Your Cost Reports
Where is it in our cost accounting reports? I challenge you to find it in your fanciest job cost system. It isn’t there because cost accounting has nothing at all to do with cash. Job cost accounting is based on Budgeted Hourly Rates—not on cash flow. (By now, we concede the inaccuracy of “rates” based on budgeted figures as predictors.)
Is the “Days of Outstanding Sales” in the Income Statements or the Balance Sheets we get each month or quarter—our General Ledger Accounting? Again, I challenge you to find it. You won’t. Sometimes you’ll find a statement called “Source and Application of Funds” in those reports—if you can figure out that report! Yes, you’ll find “profit or loss” for a period, but that tells you nothing about cash—your key to prosperity.