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.
Learn how to shorten your distance to cash with Integrated Cash Logistics CashSimple™ 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 from Intuit found 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.
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 these cash management optimization strategies. Without a cash management system, you may end up with negative cash flow and be unable to remain operable.
ICL’s software-first CashSimple™ solution streamlines everything from 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 for cash-only businesses because 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.
Discover how ICL’s proprietary software simplifies how your business controls cash.
Go Where You’re Needed
Retail stores and 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 as ICL’s configurable online portal and cash capture solution can 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 a coin 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 implementing store 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 with CashSimple™. 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 a single point of contact for everything related to cash for your business.