Cash Management Basics
Cash is your business's lifeblood. Managed well, your company remains healthy and strong. Managed poorly, your company goes into cardiac arrest.
If you haven't considered cash management an important issue, then you're probably undermining your business's short-term stability and its long-term survival. But how can you manage business cash better?
v How Do You Define "Cash Flow"?
The answer lies in the fact that the accounting rules that govern the creation of financial statements are not about tracking the actual flow of cash through your business. They are focused on measuring profit or loss -- not cash flow.
The "bottom line" of the P&L is net income. And net income does not tell you what happened to your cash balance during the period. It merely defines net income based on the accounting rules used to create the income statement.
It's an important measurement, but it is only one component of understanding and managing your cash flow.
Cash flow is made up of more than just profit and loss.
It also is affected by:
* Accounts receivable
* Accounts payable
* Capital expenditures
* Borrowings and debt service
* Other "timing" differences
* Operating decisions
* Customer credit policies
* Financial obligations