Tips on Better Cash Management
Sir Richard Branson, a business magnate, investor, author and philanthropist has rightly said: “Never take your eyes off the cash flow because it is the lifeblood of business.”
For a layman, when the term “Cash” comes across, he/she interprets it in economic conditions which are the money in the physical form of currency like banknotes and coins. But this has a very different meaning in terms of finance. In financial terms, cash is current assets consisting of money equivalent that can be used immediately or near-immediately.
This mostly includes Bank Accounts and marketable securities such as government bonds and investments. Cash, being the lifeblood of the businesses of all magnitudes, becomes an essential asset and hence is needed to be managed well.
Cash Management refers to collecting, handling and usage of cash; market liquidity, cash flow and investments. It is one of the critical aspects of the financial stability of an organisation. Here is a simple example of why cash management is essential, especially in businesses.
Let us say that we have started a new business and invested almost our entire savings.
After a few years of hard work, we have started to generate a handsome profit. If we assume that after investing a part of this profit back in the business, we have savings of Rs. 10,000 per month regularly. This sounds pretty amazing. If we go on like this even for a year, we will have Rs. 1,12,000. Now the question is, is this enough? Is this enough to protect your business from the unexpected and unforeseen losses that can happen with a business? Is this enough for fulfilling your personal requirements such as one’s own home or even a car? The answer is no.
For all this to happen, we need to multiply our available cash. We need to look for the ways where money makes itself, and hence, we need to manage it as well.
Here are certain tips for better cash management:
Regular monitoring the cash flow: Maintain the record of the income, investments and expenses. Analyse them in a proper time period, i.e. monthly, quarterly or yearly, whichever is suitable.
Cost Cutting: After analysing the reports, cut down the expenses and services that are no longer necessary or are in use. Look for the alternatives that can give similar results but in a cheaper way. Differentiate between necessity and luxury and invest accordingly.
Cash in on assets: Try selling or leasing out the assets and equipment that are no longer in use and are difficult to maintain.
Get a Business line of credit: A business line of credit act as an insurance policy for the cash flow problem. You can get this credit for a percentage of accounts receivable or inventory if they can be used as collaterals.
Lease equipment instead of buying them: Computers and other business equipment can be leased instead of buying them. This will help in accessing the latest features while avoiding tying up the cash.
Faster payment using mobile payment solutions: While selling the products to the customers, provide the services for cashless transactions via Debit cards, Credit cards, UPI payment methods etc. These can be operated using smartphones and are reflected directly into the bank accounts.
Offer deals: Some exciting deals and incentives can be provided to the customers, which can ensure early payment. Catchy deals and offers attract a wider audience and have a higher possibility of converting it into a final deal.
Asking for deposits and partial payments for the long term contracts and large orders: This will help in the generation of money enough for financing the materials and the paying the workers required for the job.
There are more ways to manage the available cash. Different methods are suitable for different types of businesses and services. These were a few of them.
Cash is the result of the hard work and efforts invested over a period of time. It must be safeguarded and try to multiply it to get the best results.
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By implementing these tips, businesses can enhance their cash management practices, improve financial resilience, and position themselves for sustained success. Effective cash management is an ongoing process that requires attention to detail and a proactive approach to financial planning.
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