Cash is the lifeblood of many businesses. Cash management optimization ensures it is pumping properly. Cash-based companies can flourish with the right tools and processes, but inadequate cash flow management can lead to profit losses and operational inefficiencies. 

According to a study, 82% of small businesses fail because of cash flow problems. Understanding proper cash flow management, forecasting, best practices, and how to improve cash flow from operations can protect businesses from failure.

What is Cash Management Optimization?

Cash management is the process of handling cash inflow and outflow. Cash management optimization is the efficient handling of cash flow

Many business factors are essential to improve cash management. For example, cash handling daily to ensure accurate deposits, managing smart safes, ordering cash and coin so change is available for customers, and having access to easy accounting tools to manage these operations is invaluable to proper cash management optimization. 

Especially if a business is regularly working with customers such as in retail or restaurants, managing these factors makes many problems easily avoidable.

Cash Flow Optimization

The key to cash flow optimization is an efficient structure allowing you to anticipate the business’s incoming and outgoing money. The structure’s foundation should align with business objectives, including strategies to improve cash flow. In short, accurate data is vital to manage short-term cash flow and long-term gains successfully. 

Transaction Optimization

Improving cash flow is not just about the cash itself. The transaction between the business and the customer is also an integral part of the business’s financial health. Communication and processing between the financial institution managing digital currency and the business’s operating system must be smooth to increase transaction optimization. 

For companies that handle cash, management must implement best practices for counting change and accounting for human error with transaction optimization.

Businesses need efficient cash flow management services if they want to stay ahead. Discover the Integrated Cash Logistics difference.

Why is Cash Flow Management Important to Optimization?

Money management refers to budgeting, tracking, saving, and planning how money will be used in the short and long term. Cash flow management specifically relates to how cash and non-cash money comes in and out of your business which enables successful money management.

Ultimately cash flow tactics for optimization give complete insight into the profitability of a business. However, in many cases, this concern is managed at a corporate level. For example, at local branches or franchises, managers still need to know the source of cash vs. the use of cash currency. 

  • Are registers being counted correctly for deposits? 
  • Are customers receiving the correct amount of change? 
  • Has enough change been ordered to get the store through holidays or long weekends when banks are closed?

Having objective answers to these questions can give businesses confidence that they are profiting or meeting business goals. In addition, this can empower managers to schedule staffing needs accordingly, establish routines for specific duties. Managers can provide evidence that they are eligible for more staff, updates to the facility, or that managers can take on more responsibility to operate the business as needed.

Short-term Cash Flow Vs. Long-term Cash Flow

There is debate about incorporating short-term or long-term cash flow forecasting in business practices. Short-term forecasting of cash and cash equivalents refers to the business’s cash flow within the next month, quarter, or year. 

Long-term cash flow predicts beyond that. Knowing the short-term goals is critical to cash flow management strategies that help managers stay on track for longer termed goals.

Challenges of Poor Cash Management Optimization

Every business must establish cash management best practices to keep operations running smoothly and customers happy. These challenges can slow down transaction completion, increase customer frustration, and impact the success of the staff as a whole. Unexpected challenges are bound to happen, and knowing what problems can occur is the first step to establishing solutions.

  • Needing to leave the business site unexpectedly: Poor cash management optimization can lead managers to be short on their cash. Most commonly, this is a problem for retail stores that are busier than anticipated. Running out of bills for single-dollars and five-dollars or quarters can lead managers to scramble and exchange money with neighboring stores. It can require managers to leave employees and customer service issues unattended while they go to the bank. And it can frustrate customers by giving large amounts of change in a smaller currency like single dollar bills, dimes, and nickels.

    Did you know? Store managers can spend up to 2 hours of their valuable time (every day) making runs to the bank to deposit and pick up cash. Eliminate that task and keep managers focused on critical on-site priorities with cash capture services. 
  • Incorrect bills and currency to last throughout business hours: Similarly to the above scenario, if customers pay with one hundred or fifty dollar bills early in the day, staff might need to use all twenty-dollar or ten-dollar bills to provide change. It adds unnecessary stress for the store team to hope customers will pay in cash with small bills to compensate for the initial exchange.
  • Lack of “bank” available on site: Particularly with restaurants, servers are often expected to bring in their own “bank.” This means servers carry a variety of bills and coins to provide change to customers. Unfortunately, only some servers do this consistently, which means they rely on the managers or the restaurant bartender to deliver change. 
  • Lack of insight into cash inflow and outflow: Tracking the cash that goes in and out of business is the primary purpose of cash management. A foundational awareness of cash flow improves cash position (the cash listed in the book at any given time). It clearly explains how much profit is made throughout the day, week, month, and year.
  • Unclear understanding of profit vs. cash: Monies are accurately labeled when you optimize cash management. That is important because you don’t want to mix up your cash and profits— cash refers to the money that goes in and out of the business, while profit is the revenue earned minus all company expenses.

How Cash Forecasting Can improve Cash Management Optimization

Cash forecasting allows you to understand the financial state of the business. This knowledge guides direction toward making plans that improve the operational efficiency and profitability of the store or restaurant. For example, when doing long-term cash forecasting, you can estimate profit and set aside money for expenses. 

Learn about ICL’s web portal for real-time cash capture insights or schedule a demo.

What is cash outlay? Cash outlay is a large sum of money you could use to buy equipment to improve the business or expand the company. Cash forecasting best practices can benefit you in these ways:

Risk Management

Technology has made business operations more seamless – and also added more risks. Now, businesses have to contend with tech viruses and malware, in addition to other typical business problems like clients failing to pay or employee retention. 

But with efficient cash forecasting, you can develop techniques for optimization. You can handle money problems easily because good cash management optimization includes setting aside enough cash for risk management while anticipating the business’s issues. 

Preparation for Unexpected Circumstances

The COVID-19 pandemic certainly opened the eyes of business owners to the possibility of an unexpected and unknown circumstance that could rock the industry—and in the case of COVID, it rocked the entire world. 

An effective technique to improve cash management would be to open a high-interest savings account for unexpected circumstances. Then, if everything goes smoothly, the money will earn interest. However, a failure to prioritize risk management can leave the business vulnerable, especially during busy seasons or holidays. 

Develop Strategies

How does cash management help with forecasting? It allows you to develop strategies for the business to stay competitive and continue to upgrade. With forecasting, the business can predict how much money is coming in and going out within the next month, half a year, and the whole year. It will help you make short-term and long-term plans for business growth. 

Improve Loan and Credit Eligibility

Cash optimization and management means paying loans on time, increasing the business’s credit score. As a result, the business will improve its loan and credit eligibility, which is a good leverage for the company when it’s time to expand. 

Best Practices for Cash Management Optimization

Why is cash flow management important? Because it provides you with the actual state of the business and allows you to plan accurately to your needs. To reach cash flow optimization, you need the right system in place. Here are the best strategies for cash management optimization:

  • Digitize Business Processes
  • Improve Cash Culture
  • Use Analytics to Improve Strategies
  • Increase Automation
  • Improve Asset and Inventory Management

The most efficient practices for optimization include cash-handling services. Integrated Cash Logistics offers software-first cash capture technology to minimize cash shrink and theft by eliminating the liability of holding cash. Schedule a demo to see how it works.

Digitize Business Processes

Today, technology can optimize most aspects of running a business. For example, some digital safes can buy your cash and hold it to reduce the risk of theft and shrink. Online money management portals can help manage accounts, track cash receipts, and provide detailed records of expenses, payments, or accounts. Smart technology can handle most of the work, giving managers and owners peace of mind to focus on business. 

Improve Cash Culture

Cash optimization starts with cash culture. Each employee, regardless of position, must share the same understanding of the importance of cash, how the business manages it, and its cash flow management techniques. For example, how to receive additional change for cash draws, counting back change to customers, and counting deposits at the end of the day are all parts of what creates cash culture. This shared thinking helps businesses operate smoothly and stay diligent about cash security.

Use Analytics to Improve Strategy

A survey revealed that 97% of businesses had adopted analytics in the company to reduce business costs, increase profitability, and enhance risk management. 

Many things affect a business, and the ability to identify challenges and opportunities while improving efficiency and transaction optimization will make growth more manageable. In addition, data analytics help give the business a picture of the current and future industry trends.

Increase Automation in Business

Automating business practices frees time for managers and owners to focus on strategies that help businesses grow and develop. Managers will notice increased productivity with less effort, efficient use of time and resources, and in most cases, better quality service the more processes are automated. And many areas can be managed with automation, including workflow, customer experience, project management, payroll, and cash capture technology.

Increase Cash Management Optimization With Integrated Cash Logistics

There is no doubt that technology makes business operations easier. A system with integrated cash management will provide faster access to cash without the usual liability. Integrated Cash Logistics (ICL) offers this critical service to businesses through the software-first cash capture technology. Once you’ve fed the cash to the ICL-provided safe, the liability of holding cash is eliminated for you, helping to avoid cash shrinkage and theft.

Businesses will have one single point of contact in ICL, which also comes with 24/7 customer service. That leaves you more time to deal with the core of the business and allows it to grow while ICL handles all financial matters. Simplify and optimize your cash transactions now with Integrated Cash Logistics services.