Running head: Cash Management Paper
Cash Management Paper
University of Phoenix
12 May 2008
Business analysts report that poor management is the main reason for business failure. Poor cash management is probably the most frequent stumbling block for entrepreneurs. Understanding the basic concepts of cash flow will help you plan for the unforeseen eventualities that nearly every business faces (Findlaw, 2008). This paper will look at some cash management techniques and methods of short term financing which are commonly used by companies today.
Cash Management Techniques
The objectives of cash management are straightforward – maximise liquidity and control cash flows and maximise the value of funds while minimizing the cost of funds. Cash management involves control over the receipt and payment of cash so as to minimize non-earning cash balances. The management of marketable securities involves selecting between various short-term investments. Accounts receivable and inventory management require credit and inventory level decisions to be made with an eye toward profitability (Block & Hirt, 2005). Good cash management is simple. It involves: knowing when, where, and how your cash needs will occur; knowing the best sources for meeting additional cash needs; and being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors (Financial Management,2008). The starting point for good cash flow management is developing a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to understand how they used money in the past. (Findlaw, 2008)
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