By generating adequate cash, businesses can meet their everyday needs and avoid taking on debts. This allows companies to have more control over their activities. When businesses take on debts to meet their expenses, debtors are likely to have a say in the running.
FREMONT, CA: Cash is the essence of every business. Businesses need to generate enough money from all its activities to meet the expenses and have leftover to pay back the investors and ensure the business's growth. Any company can fudge its earning, but the cash flow provides an idea about its health. Cash management comprises how companies manage their operations and business activities, financial investments, and other economic activities. Companies need to generate enough cash flow from its business to survive. Along with cash from its activities, companies also need to manage their cash situations to ensure it holds the right amount of money to meet their immediate and long term needs.
By generating adequate cash, businesses can meet their everyday needs and avoid taking on debts. This allows companies to have more control over their activities. When businesses take on debts to meet their expenses, debtors are likely to have a say in the running. Contradictory opinions to that of the management could become an impediment to how the management execute their business vision. Without generating adequate cash to meet the needs, a company will find it difficult to conduct routine activities such as paying suppliers, buying raw materials, and paying its employees, let alone making investments. Also, businesses should have enough surplus to pay dividends and keep investors happy. Companies also use cash to engage in share buybacks to rewards investors.
Improving Cash Management
Even while making profits, companies need to manage cash flow efficiently to be successful. A company's cash flow is linked to its operations or business activities, its investment activities, and financing activities such as raising debt or equity funding or repaying such financing. Areas like accounts receivable accounts payable, and inventories offer opportunities for better cash management. If a company starts granting credit indiscriminately, without ascertaining the creditworthiness of its customers, and not follow up on delinquent payments, that would lead to a slower and smaller inflow of cash, as well as unpaid bills. That is why it is essential to have a credit policy and follow up on delinquent payments.
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