Cash Flow Management

Cash-Flow Management is an important function of effective business management regardless of size. Without cash, obligations cannot be met, and the doors could be closed. How then do we manage cash?

Adequate forecast of cash inflows and outflows is the first step in cash-flow management. This is easily done by analyzing P&L and Balance Sheet, which should be available to most business owners. 

The Balance Sheet provides, among other things, relevant information pertaining to short and long-term obligations, while the cash basis P&L gives a picture of revenue streams on a daily and monthly basis, in addition to expenses.

Armed with that information we can prepare a budget to be implemented and adhered to by everyone in the outfit. Monthly analysis of budgeted amounts with actual must be made regularly, and all deviations, positive or negative, investigated. 

As simple as it sounds, most SMEs do not do cash-flow analysis and budgeting. Hence constantly putting out fires emanated from poor planning. Another benefit of cash-flow management is product\service line analysis, an important tool for decision making.

Good cash management makes the business run smoothly, and expansion can be planned based on cash forecast. Accurately forecasting cash-flow makes planning for equipment acquisition, and business expansion easy. 

One aspect of cash-flow management that is often overlooked is net profit. The way to do it is to treat profit as an expense item based on historical data or industry benchmark. Thus, it is added to the budget and reviewed during the monthly analysis.

We just covered a simplistic method for cash-flow management. Should you require any help with effective business management, please contact us and we will be glad to assist.

Phone: (315) 512-4482 X 1000, email: ljosr@outlook.com