How Effectively are You Managing Cash?

Calculator with twenty dollar bills and glasses. The power of well-executed video for nonprofits.


Managing cash with the care and the attention it deserves is key to your business success. Managed well you can take advantage of opportunities and grow your business. Understanding your business’s inflows and outflows of cash as well as accelerating the inflows and delaying the outflows are crucial to effective cash management.

The following are tips to effectively maximize your cash flow:

  1. Tracking the cash on a daily basis - look at your receipts and disbursements on a daily basis to manage cash outflows (company’s expenses), cash inflows (payments received), and borrowings properly.
  2. Play the role of check signer for a while to see where your people are spending YOUR money.
  3. Leave equity in the company to grow (i.e. don’t make distributions if not needed) so that borrowings may grow as well without increasing the debt to equity ratio.
  4. Review and re-forecast the cash flow once a week to project the cash surpluses and deficits well in advance for upcoming months. This will help to understand how much cash in hand you have and how long the business can sustain itself if the money suddenly stopped coming in.
  5. Have a backup plan if your business runs into cash flow problems. For example, maintain good relationships with lenders and prospective investors.
  6. Create sales projections and monitor sales so you have enough inventory on hand to meet demand, instead of overstocking excess inventory that cost you money to store and maintain.
  7. Design and improve collection process to collect receivables on time by issuing invoices on time and allowing discounts to encourage customers to make payments before due date.
  8. Negotiate better terms for your payables to effectively manage cash outflows and cash in hand.
  9. Increase inventory turnover and sales of high-margin products to increase the cash inflows.
  10. Maintain the “right growth pace” of the company at different stages, as growth gobbles the cash, to ensure that sufficient cash is available for other business activities as well.

Forecasting cash flow is a difficult process. Due to over-optimism of management in respect to sales and payments, sales turnover ratios, and expenses related to growth of business e.g. hiring new personnel, logistics, and capital equipment, they inaccurately estimate when the cash benefits of those investments will start coming in.

There are various forecasting tools available to answer “what if” scenarios and prepare contingency plans. These tools allow you to see the big picture. RINA can assist in projecting the cash by using the ProfitCents tool to experiment with “what if ” scenarios such as what happens to your company’s cash and financial position if sales increase by 20 percent? If you purchase this piece of equipment for $X but expect it to generate an additional $Y in revenue? This tool allows users to toggle different performance metrics like sales growth, gross profit margin, and A/R days to see the projected impact on each line of the income statement and balance sheet, including cash. Feel free to contact your RINA representative to help you project your cash flow.

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