I've heard countless CEOs say that they don't have time to worry about cash. "That's why I have a CFO/Controller/accounting department," they argue. I can't think of a more ignorant comment for someone to make. It's a copout. Any CEO who is not intimately involved with his cash is not paying attention. The good news is that this mistake can be fixed.
The first step to knowing cash is to know your own cash balance -- this is imperative. Next, you need to learn your Acid Test Ratio ((Cash + AR)/Current Liabilities) and monitor it closely. Make sure to watch your inflows and outflows on a daily basis. If your ATR is above 1, you're in a pretty safe place. If you're over 2, you can feel comfortable with your number. If you're below 1, you are probably in some trouble.
Your next job is to find ways to improve your cash position -- and just about every business out there can improve it. If you allow your customers to pay over time, you're basically granting a loan to them. Is that good business? Sometimes it is, if you can't make the sale without it. But how long is it taking people to pay you back? "AR creep" is an ugly game whereby customers try to stretch out the time for payment. 30 days goes to 35, and if there is no follow-up on your part, it may go to 40 or 45 or more in no time. Be sure to keep on customers if they go late. You don't need to show up at their office with a lead pipe, but make sure they know you're watching it carefully.
The flip side of this is your purchasing. Get every employee who does any buying for your company to follow strict procedures, and make sure that one of them is to check for discounts for early pay. This is one of the best deals in business. Some companies are strapped for cash and would happily give you some savings on the order if you pay quickly. You've no doubt seen "2-10, Net 30" before on some invoices. This is a great deal, because it means that if you pay in the first 10 days, you get a 2% discount, if not, the net amount is due in 30 days. If you have the cash, pay that bill within the first 10 days. You're making about 40% on your money at this point -- and in this economy, that's incredible.
It's also really important to take a higher level view of how your business deals with cash. How do you generate it? How long does it take to turn a sale into cash? Where do you spend money? Everyone can benefit from spending some time learning more about cash and in finding a better ways to manage it. It's one of the easiest and most rewarding things you can do for your business.