7 Reasons to Prioritize Business Cash Management | ICL (2024)

Are you looking to grow your business? Cash is the most important asset a business has, and effective business cash management is key to avoiding revenue loss, maximizing profits, and growing your company.

There are a lot of business cash management services and systems available for companies, but choosing the right ones for your business can be challenging. Keep reading to learn more about the importance of cash management and how to choose the best cash management service for your business.

7 Reasons to Prioritize Business Cash Management | ICL (1)

Learn how to shorten your distance to cash with Integrated Cash LogisticsCashSimple™ solution.

What is Business Cash Management?

Business cash management is the process of managing how money flows in and out of a company. This includes non-cash money such as liquid assets. Cash management focuses on:

  • Where you keep your cash and other assets
  • What cash management services you use (including banks)
  • How you document your cash flow

For example, some businesses use smart safes to deposit cash and software to document cash inflow and outflow. While it’s a good idea for everyone to keep a detailed record of cash flow, it’s essential for businesses to operate efficiently.

Examples of Poor Business Cash Management

Ineffective cash management can be detrimental to a company. A study fromIntuitfound that 61% of small businesses struggle with cash flow.

If you are not properly managing cash inflows and outflows, you are likely wasting money and losing out on potential revenue. In the worst cases, improper management of cash flows can lead to bankruptcy or losing the business completely. Understanding the most common types of poor cash management can help you avoid these pitfalls.

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Regular safes only keep cash secure. Find out how Integrated Cash LogisticsCashSimple™ solution does moreto manage your money.

Lack of Understanding Profit vs. Cash Flow

Cash flow and profit are not the same, and conflating them can lead to bad cash management. Profit refers specifically to revenue earned after all operating expenses are subtracted from it. Cash flow includes all money that goes in and out of the business from investments to profits.

Cash optimization can improve profits. However, it is possible to have profits with a negative cash flow, especially if you are investing a lot of money into developing the business. Also, keep in mind that revenue may not be available immediately, so profit is not always reflected in cash flow right away.

Bad Capital Investments

Capital investments are long-term investments that business owners make to develop the company more or meet specific business objectives. Capital investments often require large amounts of cash.

A bad capital investment creates negative cash flow where more money is going towards paying for and maintaining the capital investment that is not making a return even after several years. If this happens, the best solution is to cut the investment loose rather than fall into the sunk cost fallacy by trying to fix the bad investment by throwing more money at the problem.

Unclear Cash Management Best Practices

Accounting and cash management require attention to detail and having an organized system to be successful. You need to know when to pay your bills, when to collect accounts receivable, and when to order new inventory so that your cash flow is balanced. Digitizing and automating processes as much as possible can improve cash management, but many businesses do not take the time to implement thesecash management optimization strategies. Without a cash management system, you may end up with negative cash flow and be unable to remain operable.

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ICL’s software-firstCashSimple™ solution streamlines everythingfrom change orders to tracking deposits.

Why Business Cash Management is Key to Business Growth

Unclear cash planning and ineffective cash management activities can cause trouble for any business. On the other hand, creating and executing a good cash management plan will increase your business’s financial stability in the long term. You can:

  • Make better decisions
  • Steer real growth
  • Mitigate risks

Depending on what type of business you own, you and your employees may do a lot of day-to-day cash management. An effective cash management system will help ensure you do not lose revenue due to internal or external theft or accidental loss.

Better Financial Planning and Strategic Decision Making

A key element of strong cash management is the cash flow statement. It shows how much money is available at any given time and outlines all cash inflows and outflows in three areas:

  • Operating activities
  • Investing activities
  • Financing activities

By having this information recorded, business owners and managers can make smart choices about where to allocate funds and other strategic choices. Cash flows should inform decisions about new revenue streams, marketing efforts, and new hires.

Better Control of Cash Flow

Better control of cash flow is especially important forcash-only businessesbecause cash is a less secure form of payment than digital payment options. It’s easy for cash to get lost or stolen if you don’t have a clear cash management process. That includes a clear delineation of tasks involving accounting and cash handling and written procedures in place. Employees should be trained on the management of cash regularly to ensure it stays fresh in their minds.

More Prepared For Growth

Growth is not linear. Oftentimes growing a business requires significantly more cash outflow than inflow. You need money to:

  • Hire new employees
  • Promote existing employees
  • Purchase new equipment or supplies
  • Rent or buy new office space

Being able to use data and cash management technology to understand your revenue cycles can make you more prepared for the difficult task of growing your business. You may find that you have busy and slow seasons. So, you can budget accordingly to make up for the lower cash inflow during the slow season.

On a smaller scale, you can analyze the money flow cycle between customers, suppliers, and employees on a weekly or monthly basis. This can help you determine the best payment schedule to balance cash flow.

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Discover howICL’s proprietary softwaresimplifies how your business controls cash.

Go Where You’re Needed

Retail storesand other store-front businesses require many people working as a team to maintain daily operations. When these companies manage cash efficiently, managers and owners are not busy addressing pressing accounting issues or making last-minute trips to the bank. Instead, they are free to focus more on customers or develop new plans for expanding the business.

Using technology such asICL’s configurable online portal and cash capture solutioncan also help streamline cash management activities. With integrated cash solutions like ICL, business owners and managers no longer have to interact with multiple vendors and manage multiple accounts. Everything is simplified to promote efficiency and growth.

Improve Risk Aversion

Risk aversion is the tendency to avoid risks. In business, this means choosing investments and making business decisions that have the highest probability of a positive outcome. However, this is often the safe choice that may not lead to growth.

Being too risk-averse could cause stagnation in your business. Optimizing the management of cash can help businesses accurately analyze the risk of a new investment or revenue stream and make smart choices.

Access to New Loans or Credit

Part of a good business cash management plan is paying all bills and loans on time. This will increase the company’s credit score which could unlock new loan opportunities and better interest rates. An excellent credit score is key to getting financing to expand your business through extended lines of credit, new business loans, and generally improving your organization’s working capital. Additionally, having a detailed record of cash flows and clear business objectives can make banks more likely to approve new loans or higher credit limits.

Tackle Financial Issues Earlier

One of the biggest benefits of effective cash management is that you can plan and predict potential financial issues before they occur. When issues do come up, you can address them early and create data-driven solutions because you will have a detailed record of all cash flows.

This includes issues such as stocking change during acoin shortage. With cash management, you can predict when you will run out of change based on cash flow analysis and set up restock orders in advance. You can also identify any theft right away to increase the chances of recovering the stolen cash and/or prevent future incidents by implementingstore security measures.

Transform Your Business Cash Management with CashSimple™

Business cash management is about effectively handling, spending, and investing money in your company for maximum growth and long-term success. Bad investments and an unclear cash management system can ruin your business, but cash management accounting has never been easier withCashSimple™. Using an online portal, you can see cash deposit data in real-time with flexible reporting designed to meet your unique goals and needs.

With CashSimple™, Integrated Cash Logistics buys your cash right away and deposits it into your account digitally to eliminate the liability that comes with holding cash and the delay in cash flow before the money is transported to the bank. While cash management in banks offers some viable solutions, they do not compare to ICL because we offer asingle point of contactfor everything related to cash for your business.

7 Reasons to Prioritize Business Cash Management | ICL (2024)

FAQs

Why is cash management important in business? ›

Without generating adequate cash to meet its needs, a business will find it difficult to conduct routine activities such as paying suppliers, buying raw materials, and paying its employees, let alone making investments. And it should have sufficient cash to pay dividends and keep its investors happy.

Why should cash flow management be your company's top priority? ›

Cash flow management should be at or near the top of every small business owner's priority list. After all, while errors in customer service or supply chain management are undoubtedly undesirable, cash shortfalls may result in unpaid bills or the inability to make payroll, which could hurt your business.

What is an important objective of cash management? ›

The primary goal of cash management is to maintain adequate liquidity in a firm to meet its day-to-day obligations while utilising surplus cash to give rise to returns.

What is the key principle of cash management? ›

Monitor inflows and outflows

It might seem obvious, but effective cash flow management requires a keen eye on the money coming in and going out of your business. Regularly monitor your income and expenses, keeping meticulous records and reviewing your procedures often.

What is cash management and why is it important? ›

Cash management is the monitoring and maintaining of cash flow to ensure that a business has enough funds to function. Investments, bill payments, and unexpected liabilities can affect a business' inflows and outflows, and in turn their cash management.

What are the Big Three of cash management? ›

The "big three" of cash management include: accounts receivable, accounts payable, and inventory.

How cash management or cash flow are important for a business to succeed? ›

A healthy cash flow position reduces financial stress and helps a business avoid the risk of insolvency or bankruptcy. With adequate cash flow, a business can pay its bills on time, manage its debt obligations, and avoid defaulting on loans or credit lines.

What is cash management in simple words? ›

Cash management is the process of managing cash inflows and outflows. This process is important for individuals and businesses because cash is the primary asset used to invest and pay any liabilities.

What is the most important factor in successfully managing your cash flow? ›

Accurately predicting future cash inflows and outflows is essential for effective cash flow management. A cash flow forecast should include projections of all incoming and outgoing cash, including accounts receivable, accounts payable, inventory and capital expenditures.

What is an example of cash management in business? ›

Examples of Cash management

This involves establishing a system for tracking cash inflows and outflows, such as maintaining a daily cash log or using accounting software. 2) Creating cash flow forecasts - Creating cash flow forecasts is another essential practice of cash management.

What is the conclusion of cash management? ›

Conclusion. In short, a cash management system records and tracks cash transactions. It facilitates multiple crucial financial analyses that help ensure the company's financial health. The main benefits of the cash management system are increased productivity and profitability.

How to manage cash flow in a company? ›

Here are some best practices in managing cash flow:
  1. Monitor your cash flow closely. ...
  2. Make projections frequently. ...
  3. Identify issues early. ...
  4. Understand basic accounting. ...
  5. Have an emergency backup plan. ...
  6. Grow carefully. ...
  7. Invoice quickly. ...
  8. Use technology wisely and effectively.

How does cash management affect profitability? ›

The objective of the cash management is to ensure the financial health of a business entity which will ultimately improve the profitability for the shareholders. This can be achieved by ensuring that finance is available when needed since liquidity is the lifeblood of any business entity.

How do you control cash management? ›

Internal Control of Cash Disbursements
  1. Establishing segregation of duties. ...
  2. Following company cash control policy stating approval limits and authorized approvers.
  3. multiple bank account and check signers with limits.
  4. Requiring multiple approvals, including the CEO and board of directors approval for significant transactions.

What are the 5 principles of cash flow? ›

The five principles that form the foundations of finance cash flow are what matters, money has a time value, risk requires a reward, market prices are generally right, and conflicts of interest cause agency problems are discussed in the media.

Why it is important to determine the company's cash flow? ›

A cash flow statement is a financial statement that shows how much cash enters and leaves your business over a given period of time. It helps you identify profitable parts of the business, spot any areas of waste, and understand when and if it might be the right time to scale.

Why is the cash flow statement important to management? ›

The cash flow statement is a solid measure of a company's strength, profitability, and future outlook of a company. The importance of the cash flow statement is that it measures the cash inflows or cash outflows during the given period of time. This knowledge informs the company's short- and long-term planning.

Why is cash flow management important for individual? ›

Cash flow management is arguably the most important part of financial planning and retirement planning. Clearly, a higher income and/or lower expenses will provide you with a greater cash flow surplus which can help you meet your goals sooner.

Why is cash flow important when running a business? ›

It's the stream of money coming in and going out that keeps operations running, pays bills, and helps a company to grow. For small business owners and entrepreneurs, managing cash flow isn't just about bookkeeping; it's a critical part of ensuring the financial health and longevity of your enterprise.

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