Why You Need Good Cash Management Skills

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Cash management can be defined as the corporate process of collecting, managing and (short-term) investing cash. It`s a key component of ensuring a company`s or individual`s financial stability and solvency. And the person responsible for overall cash is known as corporate treasurers, financial officers or business managers.

Good Cash Management Skills

The importance of cash management cannot be overemphasized, as, without it, a business can become non-solvent very quickly; for lacking available cash for regular or unforeseen expenses.

A lot of small businesses struggle with cash management and positive cash flow because they are dependent on sales and timely payments. 

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It`s similar to the personal financial dilemma of living paycheck to paycheck, with nothing leftover from week to week. Also, Business with poor cash management easily falls behind in debt and monthly operational expenses, making it extremely hard to recoup stability.

At times when things are very rough, lack of cash flow can prevent the processing of payroll. Employees will strike if they do not get paid. And if your cash flow issues get to that points the business has little chance to recover.

However, a cash management system allows businesses to be solvent enough to keep the company in business even during slow activity or economic downturns. It`s also essential because

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Cash is the primary asset individuals and companies use to pay their obligations on a regular basis and have a multitude of cash inflows and outflows that must be prudently managed in order to meet these payment obligations, plan for future payments and maintain adequate business stability.  For individuals, for instance, maintaining cash balances while also earning a return on idle cash are usually top concerns.

Apart from influencing the efficiency of operations and reducing the overall cost of doing business, there are other significant roles that cash management plays

Good Cash Management Roles

  1. Allows for financing at better terms
  2. Enables companies and individuals to make special purchases and take advantage of business opportunities
  3. Allows adequate cash for purchases and other purposes
  4. Allows planning for capital expenditure
  5. Facilitates investment
  6. Ability to meet cash flow

Cash flow needs to be stressed here because it`s the most important aspect of cash management. It refers to the real or virtual movement of money. In other words, it`s regarded as the inflow and outflow of cash in an organization on a daily bases. And how to handle it to benefit the organization is where cash management system becomes significant.

It aids in measuring liquidity; and what that means is that a company is able to know the amount of cash on hand to meet current financial obligations, develop a cash flow projection, and utilize cash management planning for short and long term goals. The use of historical cash flow statements helps keep track of how money was used.

Keeping track of how cash was used in the past and knowing your current liquidity, will allow you to make long strides in managing cash flow. Knowing where your cash comes from and goes to is vital to being able to manage your available cash.

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