اذهب الي المحتوي

Understanding Cash Management


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[align=left:6f5d52ce4e]OVERVIEW

MANAGING THE COMPANY MEANS MANAGING ITS CASH FLOW.

We will be discussing the crucial subject of managing cash flow, the lifeblood of the organization—a vital element in the success and continuity of the business. The emphasis of the materials is on the principal components of cash management—what company management must know to better understand the organization's cash flow and what can be done to enhance its overall cash position. We will be looking at cash management from the operational viewpoint of one who manages the cash of the organization rather than strictly from the typical accountant's viewpoint of recording cash receipts and disbursement transactions. Our focus will be on a pragmatic and simple approach to cash management appropriate to organizations of any size—from the large to the medium-sized and smaller. The basic techniques should be applicable to all organizations, not just large organizations using sophisticated technical techniques to move and manage millions of dollars daily. Remember that each situation is unique, but cash management concerns are the same for every business.

As mentioned in the Introduction, profit can be thought of as an imaginary number created by accountants. Having enough cash allows company management to concentrate on growth, finding new businesses, acquiring new customers, locating new business partners, developing new products, installing new processes, and so on. Not having enough cash forces the company to fixate on getting more, sometimes to the exclusion of growth and development.

An early step in successful cash management is for the organization to clearly define its desired criteria for success as related to such factors as reasons for existence, basic business principles, mental models, belief systems, performance drivers, and so on. Many of these criteria can be articulated in the company's mission statement, vision statement, credo, or other such statement of purpose. This thinking can also result in probing deeper into the inner workings of the organization. These organizational criteria typically relate to the company as an entity as well as to its major functions. An example of such an organizational results criteria structure is as follows:

Organization-wide criteria

Operate all activities in the most economical, efficient, and effective manner possible.

Provide the highest-quality products or services to customers at the lowest cost consistent with the level of quality targeted.

Satisfy customers so that they will continue to use the company's products or services and refer the company to others.

Convert the cash invested in the business as effectively as possible so that the resultant cash exceeds the cash input to the maximum extent possible.

Achieve desired results using the most efficient methods so that the company can optimize the use of its limited resources.

Maximize net profits without compromising ethical standards, quality of operations, customer service, or cash requirements.

The Sales Function

Make sales to customers that will be collected profitably.

Develop realistic sales forecasts that result in real present or future customer orders.

Sell company products or services to the right customers at the right time in the right quantities.

Ensure that actual customer sales correlate directly with management's long- and short-term plans.

Assure that sales efforts and corresponding compensation systems reinforce the goals of the company.

Integrate customer sales with the other functions of the company, such as manufacturing, marketing, merchandising, engineering, purchasing, finance, and so on.

Manufacturing or service provision

Operate in the most efficient manner with the most economical cost structure.

Integrate manufacturing or service processes with sales efforts and customer requirements.

Manufacture or provide services in the most timely manner considering processes such as customer order entry, timely throughput, and customer delivery demands.

Increase productivity of all manufacturing and service operations on an ongoing basis.

Eliminate, reduce, or improve all facets of the manufacturing/service operation including activities such as receiving, inventory control, production control, storeroom operations, research and development, quality control, packing and shipping maintenance, supervision and management, and so on.

Minimize the amount of resources such as personnel, facilities, and equipment assigned to manufacturing or service operations.

Personnel

Provide only those personnel functions that are absolutely required as value-added activities.

Maintain the levels of personnel at the minimum required to achieve results in each functional area.

Provide personnel functions such as hiring, training, evaluation, and advancement in the most efficient and economical manner possible.

Develop an organizational structure that coordinates all functions in the most efficient manner to achieve their purposes.

Minimize the hiring of new employees by such methods as cross-training, interdepartmental transfers, and other best practices.

Implement compensation and benefit systems that provide for effective employee motivation and achievement of company goals.

Purchasing

Use a system of central purchasing for those items in which economies are achievable.

Implement direct purchase systems for those items that the purchasing function does not need to process, such as low-dollar-value and routine recurring purchases.

Simplify systems so that the cost of purchasing is the lowest possible.

Effectively negotiate with vendors so that the company obtains the right materials at the right time at the right quality at the right price.

Maintain a vendor analysis system so that vendor performance can be objectively evaluated.

Develop effective computerized techniques for economic processing, adequate controls, and reliability.

Accounting

Analyze the necessity of each of the accounting functings and related activities such as accounts receivable, accounts payable, payroll, budgeting, and general ledger.

Operate all accounting functions in the most economical manner.

Implement effective procedures that result in the accounting functions focusing on analytical rather than mechanical activities.

Develop computerized procedures that correlate accounting activities with operating requirements.

Create reporting systems that provide management with useful operating data and indicators that can be generated from accounting data.

Eliminate or reduce all unnecessary accounting operations that provide few or no value-added benefits.[/align:6f5d52ce4e]

 

 

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