The Concept of Liquidity

The Secret to a Better Cash Flow Management:

A series of guiding texts

  1. The Concept of Liquidity

BY Robert Inkaka B. Kanyamanza

The concept of liquidity is crucial to understanding how to run a successful business.

It is not enough to identify a market, create a product offering or marshal the resources to manufacture, sell and distribute that product at a profit. You must also be able to produce a flow of cash that pays the bills until your customers actually pay you. For your company to survive you have to be able to make payroll, buy supplies, service your debts and meet your other current obligations.

Thinking about getting a loan to tide you over?
That might be a good idea, but how much do you need? How much will lenders advance to you? It might depend upon how good you are at cash management. Lenders may not lend you what you want, but with better cash management skills you can do more with less.

How do I improve my cash management skills?
Many business owners have found that good cash management begins with the ability to accurately forecast sales and monitor how quickly customers pay.
You need to develop minimum inventory policies and forecast in advance when you will need to buy more. You must build up an effective process and means of collecting payment.

You will have to control the outflow of cash and quickly turn sales into real money. You will want to become adept at covering liquidity shortfalls and investing excess cash in short-term instruments that maximize your earning power. You will have to consider matching sources of funding and uses of cash.

Cash flow management skills, at the core of your business success
Cash management duties may seem complex, but keep in mind that they reach deeply into the company’s operations, involving everyone from line managers to top executives. While cash management carries its own unique terminology and requires some dexterity with accounting concepts, maximizing cash flow is a very real part of business. The focus is on cash out cash in – and how to bridge the time gap between these two events.

Knowing how to forecast your company’s cash flow needs is fundamental to the smooth running of your business. It might also be linked to your business success. In these series of guiding texts we take a close look at cash forecasting, with examples and charts. It is a good place to start. But if you’re not 100 percent sure that you’ve mastered the skills needed for cash flow forecasting, contact us at:

ROBERTKA Business Solutions
Dedicated to your success

 

Related texts:

  1. The Secret to Maximizing Cash Flow

 

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We are a Media and Communication Company specialized in the production of business information contents, financial and management notions and analysis. We also produce and publish World and African business headline news. We mostly focus on producing text and video analysis covering worldwide economic, commercial, management and financial trends which have a strong leaning and inclination on African businesses and affaires. We publish under the banner of our consultancy house: ROBERTKA Business Solutions.inc Join the conversation!

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