Cash is as vital to a business as water is to people. Poor management of this crucial source can drive even a profitable company out of business, especially in times when the economy is struggling.
For new and expanding businesses in particular, the risk of finding themselves short of cash needed to pay suppliers and employees is immense. Good cash flow management, on the other hand, can help business owners avoid situations where opportunities arise but they are temporarily out of cash.
Cash flow management is all about controlling the ‘cash flow cycle’. The cash flow cycle is the length between the payment of what a business owes (payables) and the collection of what a business is owed (receivables).
Businesses can use various techniques in order to minimise the amount of time funds are ‘tied up’ in order to reduce the amount of working capital needed for operations.
Do you understand why profits and cash are not necessarily the same? Do you monitor your cash position daily?
In order to efficiently manage your cash, the best action you can take is to understand the key terms and techniques of cash flow management and decide how they could be applied to your business.