A business's lifeblood is cash. It must generate enough revenue from its operations to cover its expenses while also having enough left over to repay investors and grow the business. So while a company's earnings can be manipulated, its cash flow provides insight into its proper health.
Fremont, CA: Cash management is the management of a company's operations or business activities, financial investments, and financing activities. To survive, a company must generate sufficient cash flow from its operations, which means it must cover its expenses, repay investors, and expand the business. A business must not only generate cash from its operations, but it must also manage its cash situation so that it has enough cash to meet its immediate and long-term needs.
The King of Money
A company that generates enough cash can meet its day-to-day needs while avoiding debt. As a result, the company has more control over its operations. However, when a company is forced to borrow money to cover its expenses, its creditors are likely to have a say in its run. If they hold opposing views to management, it may be difficult for management to carry out its vision for the business.
Enhancing Cash Management
Even if a company makes a profit by generating more revenue than it spends on expenses, it must manage its cash flow properly to be successful. The cash flow of a company is linked to its operations or business activities, investment activities (such as the purchase or sale of capital equipment), and financing activities (such as raising debt or equity funding or repaying such funding). The cash generated by a company's operations is linked to its core business activities and offers the best opportunities for cash flow management.
Obtaining the Appropriate Balance
There is a fine line between having too much cash on hand as a precaution and having an insufficient supply. When a company has too much cash, it misses opportunities to invest and earn more money. If it does not have an adequate supply of money, it will have to borrow money and pay interest or sell off its liquid investments to generate the cash it requires. Suppose the company expects to earn a higher return on its investments than paying interest on its borrowings. In that case, it may decide to invest its excess cash and borrow any additional funds needed for its operations.
