How does Cash Management Work?
Cash management involves effective planning to maintain adequate cash flow and liquid assets in the company. Strategic planning contains the following,
1. Cash Forecasting: Budgeting and Forecasting are parts of cash management strategy. Based on the forecasting, the company maintains a budget for future expenses and daily operations. The company assesses various sources of cash inflows and expenditures.
2. Lowering Costs: It is the key aspect of cash management. To increase the profit margin and conserve cash, a company needs to identify unnecessary expenses and try to lower them.
3. Bank Relations: Making good relations with banks and other financial institutions, helps businesses negotiate for various banking services, interest rates, granting loans, and have the most favourable terms.
4. Cash Reserve: A business needs to make proper cash reserves by setting aside money to meet any future contingencies. A cash reserve can be in the form of a general reserve or free reserve. During excess reserve, the company may decide to declare an interim dividend, which positively affects the goodwill of the company.
5. Monitoring and Adjustment: Regular monitoring and adjusting the cash flow will help the business adapt to changes quickly and foresee the expenses and various ways of generating the funds.