IN DETAIL: MONEY
Cash Concentration When it comes to controlling cash flows, every dollar counts no matter what size your business is. – By Fergal Power and Christopher Ball
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ash is key to the survival and growth of any business. Exercising proper control of cash flow can help a business achieve a number of goals, including providing a buffer against unexpected market shocks, which is particularly valuable with the global economy impacted by unforeseen events. Optimising working capital can also release cash to deal with rising costs, support growth without raising new funds, increase the valuation of a business and even lower the cost of borrowing if it is used to repay debt.
There are many tools that can provide visibility, but the most effective is a rolling 13-week cash flow forecast prepared on a receipts and payments basis. Once prepared, it can provide management with insight and granular detail around operating cash flow inefficiencies across the organisation. However, cash management is not just the responsibility of management. We advise the establishment of cash committees, comprising of all functional heads, to make them responsible for the management of cash across the organisation, together with aligned KPIs. Cash management can sound laborious
A clear cash and complex – involving substantial management strategy The second priority is a necessity for all spending on information technology – should be for firms to corporates, not just for develop a clear working but it does not have to be. when the economic capital strategy and environment becomes proactively manage their challenging. Cash working capital needs. management can sound These should be viewed laborious and complex – involving substantial holistically and in the context of overall business spending on information technology – but it does requirements. Specifically, do they have a clear not have to be. There are four fundamental steps to target for their level of trade receivables i.e. days building a robust cash management strategy that sales outstanding? What are their target levels of could help safeguard the future of any business, inventory holdings; and how quickly should they regardless of its industry or its size. pay their suppliers? Do they try and squeeze their working capital as much as possible and potentially Firstly, businesses should ensure they have visibility compromise on service levels with their buyers and and control over cash flows. By this, we mean suppliers – allowing them to deploy extracted cash businesses need to simply understand what cash elsewhere? they have and where it is located. Firms must also understand future flows and mitigate the risk of Moving away from a strategy of squeezing working running out of cash. Businesses can survive for capital, we are witnessing a greater trend whereby years without making a profit, but their viability is at larger, more ethically minded corporates are significant risk the moment they run out of cash. no longer looking to extend payment terms to suppliers, at whatever cost to the level of service
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