Cash — the Lifeblood of your Business

How to Properly Manage your Cash

By Mark Johnson
Originally Posted: July 21, 2010

I am working with several clients who are cash challenged at this time of year. Together we are carefully reviewing the P&L on a regular basis in order to identify any opportunities to reduce costs and conserve cash.

But no matter how the economy is faring or what month the calendar currently reads, cash management is always essential to the operation of any business. And the proper use of cash will provide a business owner with real advantages in the marketplace.

Proper cash management gives businesses the opportunity to:

•         Survive unexpected losses

•         Adapt to unexpected changes

•         And take advantage of any unexpected opportunities

My first step in managing cash flow is to prepare a 90-day cash forecast. I ask my clients to create this cash forecast so it can determine the borrowing needs as well as capital expenditures.

The forecast is based upon a projection of the current income statement by month for the next three months. Also, additions to the net income are for noncash expenses such as depreciation. Common reductions in cash should be recognized for cash outlays used to purchase fixed assets, re-pay debt, pay dividends and to make reductions in vendors payable.


Some questions your controller or CFO should be able to help you answer include:

•         Facilities. Buy or lease?

•         Working capital. How large and how do I manage it?

•         How much debt should my business have?

•         How much cash should my business have?

•         Am I meeting my financial goals?


A simple cash flow model is a necessary tool to help get you started in your business and move forward in establishing a successful and flourishing company.

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