3 Tips for Managing Cash

In the posting Cash Management -It’s Not About the Cash Account we looked at how cash management is more about managing other accounts. The reason is that it is these other accounts, like accounts receivable and inventory, that ultimately determine your cash balance. Knowing that, are there some helpful tips for managing cash? Well, here are three.

Remember What Determines Your Cash

This may seem redundant, but you must always be cognizant of the fact above; managing cash is NOT about the cash account. Think about it. Just exactly what can you do to actually manage the cash account? The answer is essentially nothing. The balance in your cash account is the result of how you manage other assets, along with your liabilities. Buy too much inventory and you will use excessive cash. Allow accounts receivable to get too far past due and you will experience a cash shortage. On the liability side, if you take on too much obligation in the way of loans without knowing with a high level of certainty that you will generate significant cash as a result, you have set the stage for a cash shortage.

Ask Some Questions

Perhaps among all the tips for managing cash the one that can have the most impact is to ask questions before committing to something. Consider, do you need new furniture and equipment? See Think Used for some thoughts on this. How fast can you replenish your inventory and how fast do you turn it over? This will determine a great deal just how much you need to stock and how much you need to order. If you sell on credit, how careful are you in vetting your customers before selling to them, and are you staying abreast of their credit worthiness? If you want to sell to them and cannot justify extending them credit, then consider getting the payment in advance, even if you must give a slight discount. While you may not like giving a discount, you will like it even less if you have to chase after a customer for payment or even eventually have to absorb a bad debt for which you have already incurred the cost of products, services, or both.

Know What’s Going On

By “Know what’s going on” I’m referring to your awareness of you cash position at all times. Not only should you know how much cash you have, you should also have good projections of what demands will be made for cash. Are you able to pay accounts payable when due? Are you stretched to meet payroll, always at risk of being unable to meet it? Essentially, knowing what is going on revolves around being aware of the status of those things that will impact you cash.

These are just a few tips for managing cash. Obviously there are more. What tips can you offer or are you even being deliberate about managing your cash? Not sure how to get started? AimCFO would love to help.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.


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