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Challenges and Goals of Cash Management for Businesses

written by: •edited by: Michele McDonough•updated: 1/7/2010

If you’re a small business owner, chances are you’ve wondered what are the challenges and goals of cash management for businesses? The goals of cash management for a business are not just ensuring you have enough money to pay all your bills, it’s about keeping your business open.

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    The Cash Challenge

    When you first started your business, you had your opening balance sheet that showed ample cash. You should have also created cash flow statements showing income and expenses for a few years out. Even so, the cash challenge can’t always be determined by what you have on paper, especially in tough economic times, unforeseen expenses, or slow sales. The small business owner faces the cash challenge all too often, but it can be handled by setting some goals.

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    Cash Is King

    Cash Flow by Matthew Boyle The statement “cash is king" is really true. If you don’t have cash on-hand you can’t pay your overhead expenses, vendors or employees, let alone employment taxes and sales taxes. You may be overwhelmed as a new business owner figuring out how to manage your cash, but by using good judgment and staying involved, you can reach and achieve your goals of cash management. Use the following tips to keep your cash under control:

    Keep It in Your Head - Whether you have a bookkeeper or an accounting software system, you should know your cash in bank balance at all times. Don’t leave it up to your staff to tell you how much cash you have, look at your bank accounts everyday and make sure you account for unrecorded deposits and non-cashed checks.

    Your Working Capital Is an Asset, Not Cash - A big mistake many new business owners make is showing all-needed working capital to partners, investors or financial institutions and then once the doors are open, the working capital is unwisely spent. Don’t treat your working capital as cash. The challenge of working capital is keeping it for changes or investments to your business or emergencies. It’s not to buy that great big expensive desk for your office. If you must spend it, replenish it when you can. Make a commitment to fund a percentage of profits to your working capital account.

    Compare Actuals to Projections - Take a look at your cash flow projections at the end of your fiscal year and then compare them to your actual cash flows. Do they match? Of course they won’t match completely, but if you come close, you’ve done a good job. If you are well apart in projections and actuals, consider making a cash flow projection line item for the following year for overage areas.

    Work Hard for Your Money - Working hard for your money means working hard for your customers. You need to sell, service, repair or deliver on time to be paid for your work. If you put off what you could have done today and leave it for tomorrow, that’s cash you don’t have. You opened your business because it’s was something you could sell, perform or service. Make that part of your cash goal challenge each day. Sell and deliver each day and deposit the cash.

    Don’t Rob Peter to Pay Paul - Too many small business owners find themselves behind the eight ball when they do this. If you find yourself in a cash-short position when its time to pay overhead expenses, vendors or payroll, business experts will tell you to pay utilities and other expenses needed to keep your doors open, your employees, employment taxes and sales taxes, and call your vendors and let them know you’re running behind.

    Update Projections Annually - Try and update your cash flow projections annually, or quarterly if you find you are always running out of cash. Chances are you’ve merely forgotten a line item on your cash flow projections. No matter what type of business you’re in, it’s almost impossible to outline each and every income and expense line item initially. When analyzing your cash flow projections, be realistic and don’t low-ball the numbers for expenses and don’t overestimate income. If you take the time to complete your projections correctly, you shouldn’t run out of cash.

    When considering what are the goals of cash management for businesses, your mind may wander, miss a few things, or underestimate what income and expenses will be. You’ll find a handy cash flow projection template in our Media Gallery to get you started on your cash management goals and challenges to help your business grow.






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