Actively Manage Expenses to Increase Cash

Increasing cash involves paying attention to numerous things and acting in a timely manner. Let’s briefly look at how expenses impact this. This is the last of a series of posts on this topic, following ones on converting assets to cash in Turn Your Assets into Cash, accounts receivable in All Those Accounts Receivable are not Impressive, inventory in Excessive Inventory Can Be a Burden and managing liabilities in Manage Your Liabilities to Increase Cash. While those have focused on balance sheet activity, much of what appears on the balance sheet is the result of income statement activity.

Budget are Made for a Reason

Although I’m not a huge fan of excessively detailed budgets, I do believe that in general a budget is a useful tool if it is actually put to use. To actively manage expenses to increase cash the budget is a great starting point. In the posting on managing liabilities I mentioned two ways that a budget can be used to control expenditures. Before spending ask these things:

  1. Is it in the budget?
  2. Even if in the budget, is it still really necessary?

As to number 1, if it is not in the budget you have a decision to make. If it is critical and you spend it are you willing to go over budget? If so, can you cut expenses somewhere else? As to number 2 just consider this a final opportunity to rethink what you are doing. It may well be that when it comes time to make an expenditure you’ll realize it is not really necessary.

Budgets Need to be Made Carefully

When you are budgeting make sure that you don’t fall into the trap of just looking at what you spent last year and using that same number or increasing it some. If you overspent last year this is a sure-fire way to continue to overspend. What I’m really saying is that when you are making a budget you should consider just what you are doing. This is the time for some careful thinking about what really matters and will produce the most desirable results. By actively managing the budgeting process you are a leg up in your effort to actively manage expenses to increase cash.

Be Willing to Question and Be Questioned

Okay, so you are the V.P. of Sales or Marketing or Finance or Engineering or even the CEO. While that gives you significant say-so it does not make you all knowing and infallible. We all need to be open to having others questions us and should be comfortable doing so ourselves. We may think what we propose is the best way to spend. However, none of us know everything about a company and we can easily overlook things where others are knowledgeable. Remember that the company must operate as a whole and when each part is working in concert with other parts we increase our prospects of success. This group cooperation is a great way to actively manage expenses to increase cash.

What about your company? Are you being diligent in managing expenses by appropriately preparing and using a budget and being willing to work with others for the best of the total company?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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