A client set me a puzzle the other day when he chose "Auditing my cash flows" as the goal for our session. He had just had a meeting with his accountant and was embarrassed to find he could not explain discrepancies between his incoming and outgoing monies. How could he stop the cash leakage and was it down to commercial folly or someone ripping him off? Here are some of the ideas we generated:

How do you accumulate evidence?

A standard audit principle is that "If it’s not recorded, it didn’t happen". So every time you buy or sell anything, you need to be given an invoice, bill, chit or receipt. If the cost is less than £10, write one for yourself - as a record of date, supplier and cash value. You can insist the suppliers deliver their goods with an Invoice.

BACS transfers, credit payments and debit cards automatically provide this sort of forensic evidence so you are well advised to stop paying or receiving cash and to channel everything through your plastic and electronic banking.

Who do you trust to act for you?

You can use the division of labour to create the controls and counter-checks that you need - so that the employee needing payment is not the person who signs the cheque, the storekeeper does not sign the issuance chit and the accountant does not tally the bank statements.

In a similar manner, apply reality checks to your sales activities:

* A bad sale or bad debt is a waste of your resources.
* If sales staff give discounts and credit periods that should reduce their commission and rewards. Then sales enthusiasm will be tempered by the risks they take with your money.
* Sales people should be rotated around the major accounts and sales regions before they become too cosy and forget how to see their prospects with fresh eyes.

When do you pay and when are you paid?

Timing your cash flows can be art but with a careful approach, you can make it a science:

* The Purchase ledger should lists all due payments and Payroll should predict your wage payment so you can plan your payments.
* The Sales ledger holds the details of sales and any credit given to debtors, their expected payments, the actual payments of cash you have received and the dates of each so you can plan your receipts.
* You should track the difference between your receipts (cash in) and payments (cash out) at least on a weekly basis – what you measure you can manage.

So my client took these ideas for careful management of his cashflows and has been applying them over the past three months. Already he feels he has a better grip on what is happening and how his accounting numbers are put together.

He is also much clearer about who he can trust and who he needs to watch in case they are bending the figures. I was interested to hear that "storage wastage" and "sales shrinkage" had reduced - and that alone paid for my invoice.