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Business Cash Management

Maintaining sufficient cash flow is crucial since inadequate cash management is one of the most common reasons why small businesses fail in the long run. The managers and financial decision makers must understand the basic concepts of cash flow in order to have effective cash management in a business. Cash refers to actual currency in the bank and does not include the value of inventory, accounts receivable or other such items that may be converted into cash. Subtracting expenses from income will show the profit that the company made, but not who much cash is available. That means even a business that is making a profit, can run into problems if the cash which is needed for day-to-day operations is not managed properly.

Do these situations apply to you and your business? Contact a local cash management professional today to provide assistance for your business.

Cash flow is used to describe depicts inflows and outflows of cash, or sources and uses of cash.  Cash spent on expenses, inventory, or fixed assets is a use of cash and cash received from sales is a source of cash.  Cash flow should be managed to cover short term expenses and Net Working Capital as well as a cash reserve for unplanned expenses.  When cash flow is positive, it is a sign of strength in a company however when there is a negative cash flow, companies must borrow money to meet their short term obligations and in turn must turn to borrowing in order to stay afloat.  

A local financial planner can help with the following cash management issues:

  • Profit from Investments
  • Savings Accounts
  • Net Working Capital
  • Cash Budget
  • Estimating Cash Flow
  • Reinvesting Profit
Companies usually divide the cash flow statement into three main categories - Operating, Investing, and Financing.  Operating Cash Flow is usually working capital and consists of cash from your company's sales. Investing Cash Flow is received from non-operating activities such as investments in fixed assets or other sources and expenditures of cash not related to the company's normal operations.  Financing Cash Flow is composed of cash flowing to and from lenders, investors and other external sources.

Good cash management involves three very important factors, according to the U.S. Small Business Administration (SBA).  First, understanding the company’s cash needs and knowing when cash will be needed.   Second, is maintaining a cash reserve or having liquidity if additional cash is needed.  And third is keeping positive credit ratings and relationship with banks in order to be prepared when the company’s cash reserve is not sufficient.  Every business has its own unique cash needs but effective cash management is extremely vital to a successful business in the long term.

Need help with cash management issues for your business? Find a local business cash management professional in your area.