The Importance of Cash Flow Management

[Suraya Yasmen]

The Importance of Cash Flow Management

Cash can come from both internal and external sources, and the Statement of Cash Flow helps companies and investors separate and observe the differences and extent of the cash inflows and outflows. Internal, as opposed to external cash sources, provide a company with successful attributes and assurances that include:

1) preventing and monitoring company debt

2) preventing unnecessary expenditures from interest, late payment penalties and debt costs

3) ensuring timely investment and cash available for investment opportunities

4) ensuring timely payment of expenses and debts

5) and most importantly – ensuring a level of regular business income without relying on outside investment or cash borrowing.

Effectively managing and monitoring cash flows serves many purposes. The most significant reason is to provide owners and managers insight into the company's cash position. This knowledge better equips management to make informed decisions about regular business operations, the need for further investment in the business, and capital from equity or debt partners. Cash management is something most businesses of all sizes struggle to perfect. While the Cash Flow Statement is by no means the only method of monitoring cash flows, it is an integral part of the reporting statements and should not be overlooked by the financial statement users.


Written by:
Brian O'Connor
Source:
TGG Accounting