For new and continuously growing businesses, cash management is very paramount. However, this is a very broad term denoting the collection, concentration and the subsequent payout of cash. The principal aim of cash management is to take control over the cash balances of any business entity in a manner that will effectively maximize the availability of cash that has not yet been invested in either inventories or fixed assets (Maness & John, 1998). This control ought to be so done that the risk of insolvency is avoided. Among the factors which are monitored as part of cash management include such as the company’s level of liquidity, management of cash balances and the company’s short-term investment strategies (Maness & John, 1998).
Managing cash flow is one of the principal responsibilities of a business manager. In the event that a company fails to honor any of its obligation when due as a result of insufficient funds, the company is likely to get insolvent, which is essentially the major reason why firms go bankrupt (Maness & John, 1998). Owing to this fact therefore, companies are under obligation to carefully manage their cash resources. Besides preventing bankruptcy, effective and efficient cash management also makes improvements on the profitability of the company as well as diminishes the risks to which the organization is exposed (Maness & John, 1998).
Even when a company is new and considerably small, cash flow can be problem especially when such a company is offering a product which is superior to that of competitor organizations, has numerous clients and enjoys a first-rate reputation in the line of industry it is engaged in (Maness & John, 1998). For those companies suffering from cash flow problems, it is hard to realize a margin of safety in the event of unanticipated expenses. In conclusion, poor cash management makes the hiring and retention of good employees to be quite difficult.