THE IMPACT OF CASH MANAGEMENT IN THE PERFORMANCE OF AN ORGANIZATION
Cash Management is a management process through which the systematic handling of capital is its main focus by employing administrative function and design in investment and proper utilization of cash including assets and receivables. The implementation of cash management can be wide or simple depending on the size of their organizations and the impact of such practices may vary, in most cases when cash inflow is higher than cash outflow or when revenue is greater than expenses the organization is said to have a good business performance. On the other hand when expenses are bigger than their revenue it is almost practical to say that the organization and their marketing and management performance are at risk. To make a good impression in cash management, the organization and their accounting department often create a cash management initiative to foresee a better projection upon the proper utilization of cash. They may even divide their cash flow into three main categories;
The first division would be a Working Capital that they have gained from sales and retained earnings to ensure that their company will have sufficient cash flow for operation so that they can meet the liquidity and demand of the organizations to provide a balance services, production and sales without affecting the condition of the company’s stability a working capital is a separate entity of cash flow that is purely divided for operational purposes they sometimes call it cash flow for operation. The impact of working capital division is definitely an advantage to organization profitability when the company can make such capital work by itself then there will be no need to use the other division of cash flow. The working capital should be enough to penetrate the operation of the company and this in itself is an advantage to the organization.
The second division is the cash flow for Investment – Basically most secured company put some parts of their money elsewhere since they believe that “they should not put all their eggs in one basket” and so a partial division of their cash is separated to be engaged in other activities including added business participation, acquisition of assets, bonds, stocks and other investment. This division is also at risk however, dramatically this can also be a passive income that can generate so much possible opportunity and this can largely impact the organization and company if their investment can deliver a very good return that can be unexpected. For example if the company have put on 00 US dollars in a stock market and the company that they joined have grown unexpectedly they can gain a great benefits without their knowledge, on the other hand if such company fails in stock market they will likely to exhibit the same losses.
The third division is their cash flow from external sources – These external sources can come from the bank and lending company that their organization can gain funds from loan and investors. The funds that they can get from loan will be their obligation that they need to pay and the money they can gain can also be included from their working capital or other investment that can again boost their operation. This kind of cash management is done mostly by new organization who can gain more additional operating capital, organization that is expanding and needing additional capital and a company that is experiencing financial breakdown can make use of such funds for recovery. Companies who gain their cash flow from external sources should be more careful in the proper utilization so that they can comply upon payment from maturity of such loans or if they gain their sources from stocks they should properly give their dividend and other shares to their stakeholders for their continues support.
If they have not given such dividend in due time the real impact of such funds can be extremely a disadvantage to the company. But if they have not performed their obligations to their share holders they may likely to draw back their investment that can make the company in heavy debt. The impact of effective cash management is usually a productive accumulation of funds for the growth potential of the company. Keeping a positive approach and maintaining the organizational cash flow in whatever strategy they likely to implement should be depending entirely on their advantage. Every business has its own individual cash standings but cash management and utilization of funds can extremely help in time of emergency they can have an extra sources of cash that can patch things up. A bank can instantly be bankrupt if they have not implemented a good cash management plan but if they do, they are likely to gain more customers, survive the competition and continue to expand their business operation.
Credit:ivythesis.typepad.com
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