Managing Cash Flow

284 Planning Cash Flow
Without adequate planning the company can never sufficiently know what its
cash flow position will be at any particular time. With it, surprises will be mitigated
and the company will be able to plan how to handle any shortfalls or excesses.
The cash budgeting process is similar to any other kind of budgeting, but the
timing of the cash flows has to be taken into account. This requires an understanding
of the timing of cash receipts relative to sales made and the timing of
cash disbursements relative to when the expenses are actually incurred under
accrual-based accounting.
Identifying how much cash needs to be kept on hand for normal operating
purposes is a part of the process as is development of procedures for managing
any shortfalls or excesses of cash that may occur. Handling these only when they
occur is feasible, of course, but will not allow the company to maximize the use of
the cash resource. Furthermore, if the company waits until it is out of cash to try
and come up with ways to cover that shortfall, it may not find the cash soon
enough to keep itself out of trouble.
Planning, determining when any shortfalls may occur, and developing ways
to cover such shortfalls—with banks or other financial institutions, by securing
additional equity capital, by deferring payments or any other means—will enable
the company to make appropriate decisions and take suitable action while there
is still enough time to keep itself out of harm’s way. Similarly, knowing when and
how much excess cash will become available allows the company to make intelligent
and informed decisions as to how best to utilize this excess cash. Within reason,
there cannot be too much time spent on the cash flow planning process.
MORE POSITIVE CASH FLOW
MEANS EVEN MORE HAPPINESS.