An essential role for any Controller is being able to manage the cash flow of their organization. Effective cash management has short-term benefits in your organization's day-to-day operations and can impact the long-term success of your organization. Here are three ways to improve your cash flow management strategy:
#1 Develop a Model
Developing a cash flow model that works for your organization is crucial in tracking your company's cash position. A cash flow model can be as simple or detailed as needed for your organization. At a basic level, the model should schedule out your expected cash receipts and projected cash disbursements for the next six, twelve, eighteen, etc., months. Weekly models are often the most practical and helpful, but daily or monthly models could also be used depending on how closely you need to track cash position. Reviewing historical data of expenses and cash receipts is one of the most useful sources of information to help you project what your expenses and receipts will be in the future. A review of your company's budget will also give you insight into the factors that might impact receipts and expenses in the future.
#2 Monitor Regularly
Regularly checking your cash flow model will help to increase the tool's effectiveness. As you monitor your cash position, you will begin to see trends in your company's cash flow. In addition, you will be able to see if your company is expecting to run into a tight cash position either in the short-term or the long-term. This information will give you the opportunity to proactively plan ways to meet your company's obligations rather than react when a cash shortage occurs.
If you notice that your original predictions were not accurate, you will be able to see what factors impacted cash flow that you did not consider and modify your predictions for the future.
#3 Look for Ways to Improve Cash Flow over Time
Not only is it important to manage cash flow on a day-to-day basis, but it is also essential to look at the big picture of your cash flow. Are you continually strained for cash and have difficulty paying your vendors each week? Take a step back. What changes can your organization make that will have a long-term impact on your cash position? Some minor changes that can make a significant impact include, but are not limited to:
- Speed up accounts receivables collections and take efforts to follow up on outstanding accounts;
- Offer discounts for early payment;
- Send invoices sooner and perhaps electronically;
- Streamline your inventory;
- Increase prices;
- Evaluate expenses and look for ways to cut or reduce operating costs.
None of these strategies will change your cash flow overnight but implementing one or several of these strategies can have a positive impact on your cash flow in the long run.
