Cash Management

Good cash management can be the important difference in business organizations that succeed and businesses that fail. In fact, many business analysts tell clients that cash management is more important than creative ideas or securing funding.

If an entrepreneur can learn the basics to managing their cash assets, they will be able to help their business grow and thrive while withstanding the unexpected setbacks and economic variations that challenge every business venture.

First, it is important to understand some basic definitions. Although these may not seem like cash management instructions, understanding these definitions are crucial to managing the money in a business.

• Cash: This means money on hand either in the business itself or in the bank. Cash on hand means only money that can readily be pulled out of a safe, cash drawer or bank and given to a vendor or employee if needed. Accounts receivable and physical property do not count as cash.
• Profit: Not the cash on hand, profit is the amount of money you think you will make or you do make over time. The cash you have as ready money is the amount you have to keep in order to keep the business going. Profits are beyond that cash. If your business reports a profit but a negative cash flow, then you will not last long.
• Cash Flow: Cash flow means cash moving into and out of a business. Constant vigilance over the incoming and outgoing cash (expenses and income) is one of the most pressing tasks of any businessperson.  Income will come from customers buying your product or service, loans, or investments. Outflow is payments to employees, lenders, and suppliers.
• Negative/Positive Cash Flow: Cash flow is positive if you take in more than you spend, negative if the expenses exceed the amount coming in. Often this information is tracked on a Cash Flow Statement showing operating, investing and financing areas of your cash income and outgo.

To manage your cash wisely, you should take several steps:

• Have an excellent, workable accounting system with clear reports that you personally understand without needing a professional to explain them to you. This protects you from fraud and lets you know exactly where your business is at all times, for good or ill.
• Plan ahead and be aware of when you will have cash needs, how much you’ll need, and what causes them. Plan for payroll, inventory, supplies.
• Have sources on hand for meeting extra cash needs when they occur. If you plan well and have good resources, you can be prepared for the payroll just prior to your big selling season, when you need lots of employees but have not yet brought in the cash.

Keep good relationships with banks and other potential credit sources so you are prepared to meet any cash flow challenges that occur. If you plan ahead for the worst case scenario, you are less likely to be caught without the necessary resources.

• Do you need assistance regarding business and corporate laws? If so, contact an experienced Business Lawyer in your area today!