CASH FLOW MANAGEMENT

CASH FLOW MANAGEMENT: GETTING A CLUE.

CASH IS A KING; CASH IS THE OXYGEN. NO MATTER HOW YOU EXPRESS IT- YES, YOU’VE GOT THE IDEA. CASH IS CRITICAL. LET’S FIND OUT WHY..
A COMPANY MAY HAVE GOOD PROFIT BUT WITHOUT CASH, IT WILL DIE. SALES ARE VITAL TO YOUR BUSINESS BUT THAT IS ONLY THE FIRST STEP. ALWAYS REMEMBER THAT A SALE IS NOT A SALE UNTIL YOU RECEIVE THE PAYMENT. UNTIL THAT POINT, A SALE IS ACTUALLY A MERE GIFT.
ON THE OTHER HAND, COMPANES WHICH HAVE NOT MADE PROFITS FOR YEARS BUT HAVE A SOLID CASH-FLOW FOUNDATION WILL CONTINUE TO RUN. THIS SHOULD NOT BE A SURPRICE – THEY HAVE THE MONEY TO BUY GOODS; PAY SALARIES, RENTALS AND SO ON. FOR THIS REASON, THE INFLOW AND OUTFLOW OF CASH NEED TO BE CAREFULLY MONITORED AND CONTROLLED SINCE EFFECTIVE CASH FLOW MANAGEMENT WILL HELP PROTECT THE FINANCIAL SECURITY OF YOUR BUSINESS.
GOOD CASH FLOW

IF U ARE CURRENTLY RUNNING A BUSINESS,DO YOU KNOW IF YOUR BUSINESS HAS GOOD CASH-FLOW? YOU WILL DEFINITELY HAVE THE ANSWER IF YOU KNOW WHAT GOOD CASH-FLOW IS ALL AOUT. LOOK AT YOUR ABILITY TO PAY YOUR BILLS ON A REGULAR BASIS. THIS IS THE SIMPLEST FORM TO MEASURE YOUR CASH-FLOW. GOOD CASH-FLOW MEANS THAT THE COMPANY’S INCOME AND ECPENDITURES ARE MANAGED IN SUCH A WAY IT ALLOWS THE BUSINESS TO HAVE CASH AVAILABLE TO PAY BILLS ON TIME.
CASH-FLOW CYCLE.

FIRST, YOUR BUSIESS USES CASH TO ACQUIRE RESOURCES SUCH AS RAW MATERIALS, EMPLOYEES AND OTHERS. SECOND, USING THESE RESOURCES, GOODS AND SERVICES ARE PRODUCED. THIRD, THE GOODS AND SERVICES ARE THEN SOLD TO CUSTOMERS. FINALLY, YOU COLLECT AND DEPOSIT THE PAYMENT; AND NEXT, THE FLOW REPEATS. THIS IS A COMMON CYCLE IN A TYPICAL BUSINESS ENVIRONMENT, ISN’T IT?

WHAT IS EQUALLY IMPORTANT IS THAT YOU APPROPRIATELY MANAGE AND CONTROL THESE CASH ONFLOWS AND OUTFLOWS.
CASH-FLOW MANAGEMENT IS VITAL TO THE HEALTH OF YOUR BUSINESS. IF YOU DO NOT CAREFULLY MONITOR YOUR CASH-FLOW AND TAKE CORRETIVE ACTIONS WHEN NECESSARY, YOUR BUSINESS MAY FIND ITSELF SINKING INTO TROUBLE.

IN MOST CASES, CASH INFLOWS SEEM TO LAG BEHIND YOUR CASH INFLOWS SEEM TO LAG BEHIND YOUR CASH OUTFLOWS,LEAVING YOUR BUSINESS SHORT OF CASH. THIS MONEY SHORTAGE IS YOUR CASH-FLOW GAP. EFFECTIVE CASH-FLOW MANAGEMENT ENABLES YOU TO BUILD CASH BALANCES TO NARROW OR COMPLETELY CLOSE YOUR CASH-FLOW GAP. START BY EXAMINING THE VARIOUS COMPONENTS OF YOUR CASH INFLOWS AND OUTFLOWS THAT AFFECT THE CASH-FLOW OF YOUR BUSINESS.
CASH CONVERSION CYCLE
- THE PERIOD OF TIME REQUIRED TO CONVERT RESOURCE INPUTS INTO CASH FLOWS.
O FORMULA- (ICP+RCP)-PCP=CASH CONVERSION CYCLE.

1. ICP:INVENTORY CONVERSION PERIOD
A. DURATION TO CONVERT RAW MATERIALS INTO PRODUCTS AND SERVICES.

2. RCP: RECEIVABLES CONVERSION PERIOD
A. DURATION TO CONVERT SALES INTO CASH INFLOWS.

3. PCP: PAYABLES CONVERSION PERIOD.
A. DURATION BETWEEN PURCHASE OR USAGE OF INPUTS PAYMENT.



TRICK
 MINIMISE ICP
 MINIMISE RCP
 MAXIMISE PCP
 CONSIDER THE OVERALL NEEDS OF THE BUSINESS.

TIPS IN BRIEF
1. FIND THE RIGHT SUPPLIERS AND PRACTICE THE ART OF NEGOTIATION.
2. KEEP STOCK LEVEL UNDER CONTROL. CONSIDER TO ORDER LESS STOCKS BUT MORE

FREQUENTLY.
3. IMPROVE SALES OPERATIONS TO INCREASE SALES AND PROFITABILITY.
4. USE FINANCIAL ASSISTANCE AND OVERDRAFT FACILITIES TO COPE WITH SHORT-TERM DOWNTURNS,I.E ECONOMIC CRISIS.