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What are Basic Cash Management Techniques?

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  • Written By: Karize Uy
  • Edited By: Lauren Fritsky
  • Last Modified Date: 25 August 2016
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Basic cash management techniques are financial strategies many business owners employ to keep track of all the money involved in their businesses. This can include profits, expenditures, and debts. This does not just apply to money per se, but in knowing how to record and handle the finances to ensure the business is making profits.

One of the simplest basic cash management techniques is expense tracking. As the term suggests, this technique helps a business owner monitor all the outgoing money. This usually applies when paying off loans, buying extra supplies, and distributing employees’ salaries. After all the expenses are subtracted from the business’s gross income, then the remaining amount is usually the net income. Recording every cent that goes out will help the business determine its real profits, set aside finances for regular expenses, and save up on unnecessary costs.

Aside from the expense tracking, cash management techniques should also involve tracking all accounts receivable. The accounts receivable refers to all the money coming into the business that can come from sales or returned investments. In some cases, customers and employees can even contribute to the money when they pay for the money they owed. The database should also note down the dates, such as when the money is borrowed and deadlines for payment.

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Keeping a record of incoming money helps regulate a positive cash flow by reminding any debtors that it is time to “pay up.” It also keeps the business operation on schedule by, for example, linking the time to purchase supplies to when the received money is at its peak. Withholding any expenses when incoming money is at its lowest is also involved.

Another financial strategy is to begin a credit line, which is an amount a creditor can lend a business. This guarantees that once profits are not as strong, there is still some money to keep the business going. Credit line is one of the hardest cash management techniques, but it can be beneficial for a business, provided the owner is a good debtor and pays his loan on time. If an entrepreneur pays regularly and promptly, he gains his creditor’s trust and possibly increases his credit limit. In the future, he will also have an easier time setting up credit lines with other lenders, since his credit scores are trustworthy.

Cash management techniques, especially for businesses, generally revolve around having a bigger positive cash flow to ensure profit. If all financial transactions are accounted for, a business can operate smoother. Financial records can even include an inventory, in order to have a better idea of how much the business is really worth.

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KoiwiGal
Post 3

@Mor - Another thing I would suggest for someone wanting to start a new business as a crafts person or artist is to keep track of their own hours as if they were being paid by them (in fact, some people make the decision to pay themselves by the hour rather than according to profit).

It might feel like labor is the only thing you have that is going cheap at the beginning of a project, but remember that labor could be used for something else. If you don't keep track of it as an expense, it's easy to think you are being successful when actually you are not even earning minimum wage.

If you don't care about the money and

are just in it for the art, that's fine, but if you want to make a genuine business out of your craft you need to keep track of how many hours you spend on each part of it, if only to make sure that you know how to hire when the time comes.
Mor
Post 2

@bythewell - That's particularly important for new businesses, where often the person starting it has just got a new loan or some other influx of cash to begin their enterprise and it feels like they can't spend it all.

Believe me, you can and you will and the only way to make sense of that is to keep clear records of your outgoings. All businesses take time to find themselves, and cash flow management is vital for the first few years so that you can stay afloat when the initial starting cash and resources run out.

bythewell
Post 1

Even if you aren't trained in cash management techniques you can still just use common sense. Keep track of everything. This is something that people should be doing in their own lives anyway, let alone with a business.

Don't just throw away receipts. Even if you don't have time to organize them or if you don't know how, keep them all and figure it out. Once they are gone, there's no getting them back.

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