Cash and cash equivalents form an important element of every businesses. Positive cash flow will result in scope to further growth and negative cash flow will cause doomsday. Variations in cash flow reflect healthy business activities in term of growth and investment opportunities.
Steady cash movement is a result of effective policies implemented in day-to-day business operations. Business volatility is a common phenomenon faced by every business but effectively managing such circumstances matters all the time.
Most companies appoint Chief Financial Officer who is entrusted with effectively and efficiently managing companies’ cash. Setting threshold on the spending patterns and careful observation of the outcome will prevent the company going into a debt trap.
Ways to closely monitor cash movement:
1. Perform ratio analysis to check the variances in expenses to total turnover for current year and comparable prior years.
2. Check debtor’s realisation days.
3. Check ways to minimise unwanted cash spending.
4. Review budgeted expenses against the actual and identify indicative reasons to prevent the differences.
Benefits of monitoring cash movement:
1. Improved liquidity performance
2. Flexibility in investment
3. Keeping up with the debts.
4. Invest in company’s growth
Being Cash is the king, profitable doesn’t necessarily means liquid. Quick and readily available cash will facilitate stronghold of the company in various business development decisions I.E mergers & acquisitions or investment in new product or market or conduct new product Research & Development. Giving close attention to cashflow management will help you build strong portfolio and dominate the market competition significantly.
We at CFOLead will help move your strategic focus on effectively managing the cashflows through adopting various accounting tools and help you be in a better position to manage unexpected challenges.
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