What Is Cash Flow Management?

    Sep 04 2019

    Topics: Cash Flow Management

    It’s a common activity in almost every industry, and every business owner and finance officer finds it challenging from time to time.

    Of course the subject is cash flow management. What exactly is it, and why is it so important? Perhaps most important of all, what can you do to improve it in your business?

    Defining Cash Flow Management

    The first thing to do is define cash flow management.

    Cash flow is essentially the movement of cash in and out of a business. Cash paid to you by customers is cash flowing into the business. Money you pay to vendors, or for taxes and other business expenses, is cash flowing out.

    Ideally, the cash coming in always exceeds the cash leaving your hands. The world is rarely ideal, though, and many businesses find themselves facing situations where the cash flowing out far exceeds the cash coming in.

    That’s why proper cash flow management is so important.

    Managing Cash Flow in Good Times and Bad

    When income exceeds the outflow, the cash flow is easy to work with, but it must still be managed with care. When the money leaving the business exceeds what’s coming in, cash flow management is even trickier.

    Businesses can face cash flow reversals in short intervals. A retail store or restaurant, for example, may see positive cash flow one day and experience negative cash flow the next.

    Other businesses experience these fluctuations over the course of a month. This may be due to outflow when bills are paid, or inflow when customers pay their own bills.

    Good management of cash flow helps businesses continue through thick and thin. By proper management when cash flow is positive, business owners and financial officers will ensure there’s enough cash to get through the leaner times.

    Dealing with Long-Term Cash Flow Issues

    It’s not uncommon for businesses to see longer-term trends in their cash flow. If the trend is positive, prudent business owners save or pay down revolving credit balances to have funds available for the next flow reversal.

    If the trend is negative, business leaders need to find creative ways to manage. They may turn to credit to help them navigate lean times, especially if the business doesn’t have much in cash assets.

    Big purchases and investments can sometimes turn an otherwise positive cash flow into a negative one. That’s why it’s so important to budget for investments (in real estate or new equipment, for instance) carefully.

    Of course, business owners sometimes need to make larger purchases on the fly. If your computers are fried during an electrical surge, you probably won’t be able to wait months to replace them.

    Streamlining Cash Operations

    When it comes to managing cash flow effectively, one of the best things any business owner can do is streamline their cash operations.

    This means taking steps to reduce the costs associated with managing cash in your business. Possibilities include adopting cash automation; partnering with a new CIT vendor to lower your fees; or purchasing a coin and banknote recycler to direct the money coming into your business back into circulation faster, reducing the float for your store in the process.

    Another tactic is to encourage your customers to pay with cash instead of credit or debit cards. Debit and credit transactions come with high fees for the merchant, and the funds aren’t always available right away. Cash has lower costs and is ready for almost immediate use.

    If you’ve been looking at your cash flow management and you’re not currently satisfied with the outcome, it could be time to make changes to the process. Sit down and review your budget, then prepare your new and improved strategy.

    Andrea Lombardi

    Andrea Lombardi

    Andrea joined the CashTech team upon its inception in 2003. Learning the business from the ground up, she now utilizes her expertise in account management, planning, and negotiation while managing the daily operations of CashTech’s sales, marketing, and logistics departments. Andrea holds a bachelor’s degree from the University of Western Ontario. She enjoys travelling and has a passion for personal fitness, including obtaining her kettlebell certification. Andrea lives in Toronto with her husband and two young sons.

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    CashTech Currency Products Inc.
    1040 Cardiff Boulevard
    Mississauga ON, L5S 1P3