A company has to generate an adequate cash flow from its business in order to survive.
In addition to generating cash from its activities, a business also needs to manage its cash situation so that it holds the right amount of cash to meet its immediate and long-term needs.
Why is cash management important to a business?
Enables you to make special purchases and take advantage of business opportunities. One of the first steps in cash flow management is measuring liquidity, this means having the amount of cash on hand to meet current financial obligations. Using historical cash flow statements helps keep track of how money was used.
Why is it important to have effective control of cash?
Businesses that take in significant amounts of cash are vulnerable to theft, robbery and fraud. Companies establish systems of internal controls to minimize the risk of such incidents. The inherent vulnerability of cash and negotiable instruments such as checks and credit cards require healthy internal controls.
What is effective cash management?
Effective cash flow management. Managing cash flow is crucial to a company’s financial health. Every business faces its own unique challenges as cash is needed to pay fixed expenses such as property lease, bills and salaries, as well as to purchase assets and inventory.
What could a business do to reduce the amount of cash coming through the business?
Lowering staff overtime and creating a more environmentally friendly workplace to cut down on power and water bills can also reduce overheads. These changes can increase your monthly cash flow significantly, giving you more money to invest in company assets such as new processes and staff training.