Managing Cash Flow

Cash management is one of the most critical factor in ascertaining business success. “Cash is king” is a slogan that ALL business owners should adhere to. Through the various clientele experiences that i have, some basic guidelines for managing cash flow in small business are outlined as follows:-

  1. Maintain an adequate level of cash to meet current obligations and invest idle cash into earning assets. Check that you are able to convert investments back into cash quickly. On the other hand, meet obligations only as they come due.
  2. Convert current assets into cash. Inventory levels must be converted into accounts receivables and accounts receivables must be converted into cash
  3. Identify and understand the operating cycle; Accounts Receivable, Inventory and Accounts Payables. Some good financial ratios can come in handy if applied properly:-
    • Inventory Turnover = Cost of Goods sold / Average Inventory
    • Receivables Turnover = Sales / Average Receivables
    • Payables Turnover = Cost of Goods sold / Average Creditors
  4. Develop and implement a strong internal control system. A few good principles include: Separation of duties, regular monitor of cash balances and bank reconciliations.

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