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Cash Management - « back to Articles

Even the most successful business owners sometimes find themselves short of cash. Profit and Loss statement may look good, at times there is lots of cash and other times not.

Cash management determines as accurately as possible what the cash balance at any given time should be. Cash management is divided into two types of activities:
  • regular controls
  • cash flow forecasts
Regular Controls

If your business handles a large amount of cash ensure that you or your employees practice effective cash control.

Regular controls include:
  • Assuring cash register tapes are and bills are balanced on a regular basis.
  • Cheques should be deposited into your bank account as soon as possible.
  • Petty cash should always be there either in cash or vouchers. Staff can sometimes be less attentive with petty cash so pay particular attention to withdrawals and employees advances.
  • Reconcile your bank records with the bank's record of deposits and withdrawals. A proper Reconciliation provides for cheques written but which have not yet reached your bank.
Take these basic steps to establish and appropriate internal control system. You should then be able to turn your attention to a cash flow forecast.

Cash Flow Forecast

A cash flow forecast assists you to determine:
  • what future cash needs will be
  • when cash needs will occur
  • where you can get the money to meet the needs
It is a document that indicates the actual flow of cash into and out of your business over a period of time of twelve months. When it is prepared on a monthly basis it can be revised when necessary to reflect changes.

A cash flow shows all anticipated revenues: sales, payments on receivables; proceeds from loans; sale of assets; or any other transaction that will increase the amount of money in your business. Similarly, all transactions that reduce the level of cash should also be shown on your forecast:
  • salaries
  • operating expenses
  • loan payments
  • asset purchases
  • inventory or raw material purchases
A cash flow forecast will give you a warning signal that your business will not have sufficient cash on hand to meet its obligations at a certain times. The forecast will also show the periods of cash surplus. This makes it easier to make arrangements with your banker for support when needed and enables you to put surplus cash to effective use.

Cash is a vital asset in your business.

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