Cash (and the resulting positive flow of cash) has frequently been called “king” and “the lifeblood of business.” Simply put, cash flow management involves monitoring, analyzing, and optimizing the cash flowing into and out of a business. Positive cash flow ensures that a business will have sufficient funds to pay its operating expenses, and salaries, and meet loan repayment obligations. Managing cash flow is essentially “monetary logistics management.” 

The Objectives of Managing Cash Flow 

There are four objectives for managing cash flow wisely: 

First, to closely monitor and control cash inflows and outflows so that regular payments can be made to suppliers and employees, and to cover all other expenses. Careful control and planning of cash ensures that a company will have the funds necessary to continue operations even during dips in cash inflows. That means minimizing operating costs while meeting expenses.  

Second, to meet the demands of unexpected expenses by maintaining sufficient reserves and liquid cash. 

Third, to effectively plan the needs of future funds. 

Fourth, to remain solvent. In other words, to enable a company to meet its long-term debts and financial obligations and remain financially healthy. 

Functions of Managing Cash Flow 

The functions of cash management are inventory management, receivables management, payables management, and short-term investment management. Each of these are pointed to maximize the availability and usability of cash, while at the same time minimizing the costs and risks associated with business operations. Wisely managed, a business will have the liquid funds it needs to continue operations. s 

Why Managing Cash Flow is Critical 

For every business of every size and in every industry, effectively managing cash flow: 

  1. Enables day-to-day operations. 
  2. Helps to make more informed business decisions. 
  3. Contributes to effective planning and budgeting. 
  4. Helps in the management of working capital. 
  5. Provides flexibility to handle unexpected expenses or to address unanticipated opportunities. 
  6. Facilitates healthy business growth and expansion. 
  7. Improves a business’s creditworthiness. 
  8. Reduces financial stress, including the risk and stress of insolvency or bankruptcy. 
  9. Helps to increase business profitability. 
  10. Provides a useful and accurate financial picture for the enterprise. 
  11. Contributes to an overall stronger business performance. 

Strategies for Managing Cash Flow 

Consider these strategies for managing cash flow: 

Send out invoices promptly. Delays can negatively affect cash flow. In addition, it can be helpful to incentivize early customer payments. 

Focus on inventory control. Adjust inventory levels as needed. Drop items that aren’t selling well. Don’t buy additional stock prematurely. Invest in items that sell particularly well. 

Lease equipment instead of buying it. That lessens your short-term financial obligations. It also gives the business flexibility to update equipment as needs evolve. Sell or lease idle equipment. 

Borrow money before you need it. That gives you the potential advantages of better interest rates and repayment terms. For example, you can open a business line of credit while your performance numbers are good, and that gives you a fallback position when financial needs arise. Also, look for better financing options. 

Seek alternative funding sources. 

Continually evaluate your business operations, looking for improved efficiencies. 

Restructure your payments and collections and refinance any high-interest debt. 

Constantly monitor where your money is going. Be sure to keep reserves of cash for difficult financial periods and to seize unexpected opportunities. 

Take advantage of technological advances. 

Increase margins through expense controls and strategic price increases. 

Look for and develop alternative revenue streams. 

Explore discounts including early pay discounts from suppliers. 

Improve budgeting processes including budget accuracy.  

Seek alternative funding sources.    

Get Expert Alternative Financing Assistance 

Contact Multiple Financial Solutions for alternative financing options. We offer a portfolio of alternative funding solutions for companies that can’t get funding from banks including business lines of credit, merchant cash advances, and commercial real estate funding. We focus on businesses that have been active for 2+ years and are looking to grow to the next level. If you are facing a funding deficit, we are ready to help you.