subject: Managing Your Cash Flow [print this page] Managing Your Cash Flow Managing Your Cash Flow
Cash flow is the lifeblood of any business-the cash that goes in and out of your company determines your financial position. In particular, managing how your cash flows in and out of your bank account depends on how you balance the timing of your cash collections from clients with cash payments to your suppliers.
Slow collection of receivables at a time when you need to pay your suppliers could give you unnecessary financial stress. You may need to borrow to bridge your working capital needs or you risk getting a credit downgrade from your suppliers. On the other hand, if you collect efficiently but pay your suppliers too soon, you might incur significant opportunity costs. Managing your cash means you need to collect cash from your customers as soon as possible while paying your suppliers as slow as possible.
To manage your cash flow, you need to project your cash flows over a period of time weekly, monthly, quarterly or annually to serve as your guide.
Start your cash flow projection with the beginning cash balance for the month use your latest bank balance from the previous month. How much of your accounts receivable do you expect to collect during the period? Do your customers pay by installments? If so, how are the payments scheduled over the following weeks? How much of the sales are on cash basis? Do you require customers to pay down payments? If so, you also need to project your sales growth over the period to determine your cash collections.
After projecting cash receipts, you will need to project your cash disbursements. You can divide your cash outlays into non-discretionary (salaries, utilities, rentals, other operating expenses, payments to suppliers and bank amortization) and discretionary (office renovations, acquisition of new office equipment or hiring of additional staff) cash outlays.
Subtract total cash disbursements from your cash receipts and you get your projected net cash flow. If this comes out negative, it means you projected to have cash deficits for the period and you need to do something to keep the figure in positive territory or to at least diminish the gap between receipts and expenditures.
