Cash Management is the process of efficient collection, concentration, disbursement, and investment of cash in any business establishment while assessing and maintaining the company’s liquidity. Business managers and cash handlers are responsible for maintaining order in cash schedules (inflows and outflows) to remain solvent and keep things running smoothly.
In other words, it is how a business keeps a record and manages its financial operations, such as investments in different short/long projects, a collection of receivables/revenues, payment schedules (expenses, debts, and liabilities). It also ensures that the business has sufficient cash to keep the business afloat financially.
Why do Business Start-ups Fail to Create a Long-Term Impact?
Without a doubt, effective cash management is critically important for new and growing businesses—entrepreneurial business ventures across the globe face extreme level difficulties in managing their cash flow effectively. According to research, 83% of the total start-ups fail to create a significant impact in the market.
They lack the financial management skills, knowledge, expertise, and experience necessary to keep the business afloat in its ideal capacity. This reflects that maintaining a healthy cash flow bears paramount importance in the retail industry as it keeps the business going—on and on!
No matter how great your business model may be, how effective your business execution strategy may be, how many investors are ready to support your business’s strategic mission—you can’t survive for long if you are not capable of managing your company’s cash flow.
Another reason small-scale retailers and business entrepreneurs fail to create an impact in challenging circumstances is that they fail to understand the relationship between ‘managing cash flow’ and ‘cash management knowledge.’ The businesses that can understand and fill the gap earn considerable rewards in terms of increased profitability and sustainability, which are the essential components of any successful business.
Cash Keeps The Business Afloat Financially
‘Cash is king’—we have heard this during our entire academic journey. However, have you ever given intense thought to why effective cash management is considered the backbone of any business? No matter what one may argue, sound cash management is the real game-changer for any business, which means it either makes the game or breaks the business into pieces.
In other words, without money, businesses will probably hit a dead end, which means they cannot survive. Money acts as a front-line guard that protects a business from impending financial threats or unforeseen business crises.
For effective cash management, businesses need to address three main questions 1) how much cash do they have, 2) where is the cash coming from (influx of cash), and 3) where is our cash going (outflow of cash). The businesses that maintain and keep the right strategic balance in addressing all of these questions can expect to keep their business afloat financially, which means higher monetary gains in the future. We have long been told that profits determine the fate of any business and keep it going.
A Biased Perspective
A recent study has revealed that most businesses, especially start-ups, fail due to the absence of cash rather than the absence of profits. This indicates that adequate cash flow management is significantly essential for deciding the fate of the business – long-term sustainability and profitability. Besides giving financial control, it assists businesses to fight impending financial dangers and helps them plan for unforeseen eventualities.
What Can You Do To Maintain A Healthy Flow Of Cash?
Make a Budget
For knowing the exact status of the influx and outflow of cash, you need to make a financial budget. Cash management is not an alien job. It will require your time, effort, and energy. Once you know how to control and handle your daily cash, then you can put your retail business on the right track.
Collect Receivables Promptly
Any business needs to collect their receivables as soon as the sales are made. For maintaining a healthy financial life cycle, transactions must be reviewed, tracked periodically, and credited to your business account without further delays. The quicker you do it, the quicker you will become financially secure.
Manage Inventory Carefully
A smooth flow of business activities can be ensured if you manage your inventory carefully. You must have a clear picture of your suppliers and vendor details for an effective payment and cash management schedule. According to studies, nearly 75% of your cash is tied up in inventory which indicates that you need to make careful judgments and analyze how to stock your shelves.
Launch Loyalty Programs for Employees
Your employees are your tangible assets, and investing in them seems to be a fair trade. Business managers will most likely handle and manage cash, so you need to empower and reward your employees at their respective grades to motivate them not to get involved in unethical activities.
Use Technology to Minimize Errors
Sometimes, managers or cash handlers will face extreme levels of difficulty in managing cash during rush hours. It is better to use technology, integrate POS software, or encourage customers to make wired payments to avoid discrepancies. This will significantly help managers to manage cash easily and more efficiently.
Define Your Cash Handling Processes
Cash management may seem daunting at first, but if you define a set process for managing your daily cash operations, it will be a big plus for your business. Some retail houses may use manual ways of handling daily management, paper trails, and tracking. The rest may use more advanced and electronic cash handling platforms, systems, or software. In short, it is all about how well you can manage your cash.
Retailers across the globe have different levels of expertise, knowledge, and experience in handling their cash and disbursement schedule. For achieving success and a healthy financial life cycle, you need to learn the art of handling cash properly. Cash management may seem incredibly challenging at first, but the correct cash order can be maintained once you develop those skills. You can also hire experienced and educated business managers and accountants to execute important cash-related tasks.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.