Discover revenue through very simple bank statement analysis

Every month businesses receive an analysis statement from each of their banks detailing their deposit account service use. These billing statments contain a wealth of information about your bank accounts and cash management operation – they are a resource that should not go underutilized.

To keep this relatively simple for attention span sake we’ll just mention a few easy steps you can take in passing time to better understand your charges and discovering possible revenue from costs you may not even know you’re either paying or a cost that could be cut.

Cost Control
Let’s start with your calculated “ECR” or Earnings Credit Rate. This really needs to be comp’d out to discover your true cost of savings throughout the year. This marginal rate could be costing you thousands throughout the cost of the year.

A superior rate would be around the neighborhood of 1.5. This rate will do more than cover your fees and expenses for the services your business is utilizing; i.e. cash management tools, remote deposit, lockbox, check frequency, ACH services, Wires, Courier Service etc.

Reserve Reduction
Next let’s cover your Reserve Reduction. This is where your depositing institution is applying and calculating your ECR. Some are based off of average deposit balances and some are based off of collected balances. The bank may be applying only a portion of your balances to your ECR while receiving interest from the Fed on all it’s reserves. Reserve requirement’s should be around .1 of your investable balance (balance remaining after float). You could be doing much more with idle cash.

FDIC Coverage
Some banks will require a fee for FDIC coverage. I would suggest reaching out to an institution that doesn’t charge.

Case Management and Service
Finally, the whole reason you’ve probably decided on a deposit partner. Everyone is human so mistakes are always going to happen. The real test is how the problem is resolved and what is done in the future to ensure it doesn’t happen again. Just because your relationship with your existing institution is cemented through networked account numbers, ACH transfers, direct deposits, check floats, payroll, merchants and discounted credit lines doesn’t mean you can’t consider alternatives. Use this for what it is. A simple concise idea to squeeze out a little more from your existing operations.

Insanity: Doing the same thing over and over again and expecting different results.


FDIC Coverage

It is important to periodically ensure your deposit position has limited exposure to market induced loss. Leveraging FDIC coverage is a great tool to prevent any surprise catastrophe from occuring. Be sure to analyze your coverage position as well as your options for ensuring optimal coverage; Beneficiaries, Cusotodian accounts and choosing the correct products and structuring the ownership properly is essential to maximizing your coverage. Also, wealth transfer products such as Trusts are a great tool to shelter taxes as well as ensure your FDIC coverage is leveraged appropriately. Visit


Health Savings Account tax benefits

If you made after-tax contributions to an HSA account (not payroll deductions) you may be able to claim a deduction on line 13. See the IRS instructions for additional information.

If you took funds out of your HSA account, or had CIGNA withdraw funds to cover your deductible, you should receive a 1099-SA reporting the distribution of funds from your HSA. These distributions from your HSA will be entered on line 14a of form 8889. If you have unreimbursed qualified medical expenses, they may be entered on line 15 of form 8889. Pages 1 and 6 of the IRS instructions explain what may be included as an unreimbursed qualified medical expense.

A sample of a completed form 8889 may be viewed here. This sample is for a family (or couple) covered under the HDHP for the whole year; the employee having $228.84 deducted each payroll for the HSA (and having $5,949.84 reported on the W-2); a $500 withdrawal from the HSA account and $500 in unreimbursed qualified medical expenses.


Efficiency and Turnaround time; The bloodpressure reading of a business

Here is a great real world example from Investopedia. This article breaks down Inventory Turnover. Use this as a framework tool to compliment Receivables Turnover Ratio. There are many other efficiency ratios we could discuss but these are 2 important ones I utilize frequently.

Let’s look at U.S. retail giant Wal-Mart, known for its super-efficient operations and state-of-the-art supply chain system which keeps inventories at a bare minimum. In fiscal 2003, inventory sat on its shelves for an average 45 days. Like most companies, Wal-Mart doesn’t provide inventory turnover numbers to investors, but they can be flushed out using data from Wal-Mart’s financial statements.

Inventory Days = 365 Days / (Average Cost of Goods Sold/Average Inventory)

Obtaining Average COGS To get the necessary data, find its ‘Consolidated Statements of Income’ on its website (see http://investor.walmartstores.com and look for the 2003 Annual Report) and locate cost of goods sold (COGS), or “cost of sales” found just below the top-line sales (revenue). For the 2003 fiscal year, Wal-Mart’s COGS totaled US$191.8 billion.

Obtaining Average Inventory Then look at the ‘Consolidated Balance Sheet’ (the next page after ‘Statements of Income’). Under assets, you will find the inventory figure. For 2003, Wal-Mart’s inventory was $25 billion, and in 2002, it was $22.7 billion. Average the two numbers ($25bn + $22.7bn / 2 = $23.9bn), then divide that inventory average for 2003, $23.9 billion, into the average cost of goods sold in 2003. You will arrive at the annual turnover ratio 8.0. Now, divide the number of days in the year, 365, by the annual turnover ratio, 8.0, and that gives you 45.3. That means it takes Wal-Mart just over 45 days, or about a month and a half, to cycle through its inventory.


Interactive Calculator to help you control and track your cash flows

Many startups and small businesses fail despite being nominally profitable. When it is time to pay the bills, cash is king. Use this handy calculator to see the effect of sales, inventory, credit terms, and other variables on your company’s cash flow.





Working capital is often misunderstood for cash.  Working capital is the difference between all of your current assets (cash, accounts receivable, etc.) and your current liabilities (accounts payable, accrued expenses, etc.).  Notice that cash is actually only a part of this equation, and it is usually a smaller part at that.  So, what in the world is working capital?

working capitalThe easiest way to explain it is in terms of the number of days difference between when you pay for things and when you get paid.  Here is a simplified example:

Cash goes out to pay for parts and labor to build a widget.  After 10 days the widget is ready to be sold.  It takes another 20 days to sell the widget to a customer on credit (net 30 terms).  The customer pays early – in 25 days.  The total working capital cycle is 55 days.  Hence, the business needs to have enough “working capital” to fund this transaction until it gets paid. 


Based on the example above, a business will need a certain amount of “working capital” to handle this 55-day cycle.  But what if the company can improve its manufacturing process and get paid a little earlier, reducing its working capital days to 42?  This means the company would need less working capital to fund its operations.  Since most people confuse working capital for cash, we think a bigger number is better.  But companies that run an efficient working capital cycle require lower working capital, the sign of a well-run and efficient business.


Collections Performance

For Entrepreneurs, collection of accounts receivable balances on a timely basis is an important contributor to cash flow. The faster the collections, the better the cash flow.

How do you measure your collection process? How do you know that it is working well and your company is continuously improving its collection efforts?

One potential metric is Days Sales Outstanding (DSO). If you calculate your monthly DSO and monitor the trend, you will see the efficacy of your collections efforts.

Ratio analysis can be used to tell how well you are managing your accounts receivable. The most common ratio for accounts receivable is turnover.  This ratio is calculated as follows:

Accounts Receivable Turnover = Credit Sales / Average Receivable Balance.

Example : Annual credit sales were $ 400,000, beginning balance for accounts receivable was $ 55,000 and the yearend balance was $ 45,000. The turnover rate is 8, calculated as follows: Average receivable balance is $ 50,000 ($ 55,000 + $ 45,000) / 2. The turnover ratio is $ 400,000 / $ 50,000. This indicates that receivables were converted over into cash 8 times during the year.