Today we’re sharing insight from guest blogger Anita S. Knudtson, Consultant/Owner of Experient Consultancy. We hope you enjoy Anita's wisdom and perspective.
It takes money to make money, and shrewd business owners know how to make the most of what they have and to secure its safety. Managing the inflow and outflow of cash is a vital financial function that can create a competitive advantage or, if poorly executed, disastrous results.
What risks should you be managing in your cash management system to maximize the return of your dollar?
- Centralization Of Cash – Successful cash management systems accomplish this by ensuring the inflow of funds is directed to a central point and is unhindered. They also control the outflow of funds and communicate key information necessary to regulate events accurately and timely.
- Control The Cash Gap - Everyone knows that “Time is Money” and it definitely applies to how you manage your cash gap. All cash flow cycles have a cash gap — the time between when you have invested in your business or your assets and your return, measured in days. This gap is the cost of doing business. Interest accrues each day you have borrowed on your investment. Thus, the longer your cash gap, the higher the cost of your investment and the lower your return.
- Utilize Your Bank’s Cash Management Services - A competent cash management system offers the tools necessary to successfully control and manage your cash gap. Characteristically, these tools include bank provider services and internal collection and disbursement policies that can help regulate and manage your cash flow timeline. More often than not, the shorter your cash flow cycle is, the more liquid and profitable your company is. And the more profitable it is, the more value it provides to your stakeholders. Naturally, the value of these tools is offset by their cost and return is highest when complemented by low cost. In addition, the system must be supported to achieve maximum benefit.
- For example, a company utilizing ACH transfers (Automated Clearing House, a collection of electronic interbank networks used to process transactions) as a payment option could achieve benefits. ACH transfers eliminate the typical float period caused by traditional payment options; the exact date of payment is defined. As a result, the payee has more control over when its payment is deducted from its bank account, and the payor knows precisely when the payment will be received.
The end result provides information to manage your business’s cash forecasting and cash flow with greater accuracy and align your organization’s strategic goals with the needs of your customers and suppliers. With these enhanced cash management skills, you will also be providing better customer service while matching the needs of your cash management system and making modifications that are beneficial to both you and your customers.
- Develop And Monitor Your Cash Forecast - A profitable cash management program is designed to control the allocation of funds to attain maximum value for the organization’s short- and long-term business strategy. Regulating your company’s cash flow timeline — the time cycle of purchasing and paying for resources and then correspondingly selling and collecting payment for your company’s products or services — requires informed judgment and precise calculation. Time is money, and impediments to your cash flow can produce negative consequences and reserves should be invested for maximum return. Achieving equilibrium between these conflicting counterparts is cash management’s primary function. Forecast statistics and credit resources should be qualified to ensure enough funds are readily and constantly available.
- Set-up Secure Methods For Access To Bank Accounts - Personnel must follow the system’s policies and guidelines. Bank accounts should be constructed to sustain receptive and efficient processes including “Dual Authorizations” for movement of funds or making changes to account structures. Many a businessperson has been burned with fraud by allowing a trusted employee to manage all points of contact for their cash management system or the dreaded “Cyber Fraud”. Your greatest risk to your business is giving up control over your cash activities. It is most critical that you protect yourself up on the front end in order to prevent the possibility of being a victim of unauthorized activities that can lead to disastrous surprises.
- Know Your Customer And Your Competition - To improve your organization’s cash management process, you must understand how you do business and how others do business with you. This essential business-process evaluation can uncover cash flow improvements that will support your strategic goals.
- Maintain A Strong Relationship With Your Banker - Your banker wants your business to succeed. He or she can review your cash flow projections with you, provide industry insight, help finance your growth, and identify helpful treasury management services and other banking solutions. Review your business’s performance with your banker annually and share plans for your future growth.
The advantages of a strong cash management program reach well beyond mere cost savings. They can also enhance your organization’s ability to regulate many other internal processes such as banking fees and services, relationships with financial partners and fraud prevention, to name a few. All of these benefits can add to your bottom line but their intangible benefits can be equally valuable to your organization and its stakeholders. A cash management system can help you eliminate unnecessary procrastination that can waste your organization’s valuable resources. Following these prerequisites are essential to the success of any cash management program.
We live in a different world today than what existed even a year ago with the ever-changing growth of the internet and the speed at which transactions are closing today. Failure to maintain control over your cash management system may be the single most costly mistake you will ever have in your business.
This content was written and shared by guest blogger, Anita Knudtson.
In May, 2017, Anita formed Experient Consultancy, Inc. to provide financial consulting services to a variety of businesses and not-for-profits.
Anita is a licensed CPA, CTP (Certified Treasury Professional) and CAMS (Certified Anti-Money Laundering Specialist) as well as a member of the AICPA, INCPA and AFP professional societies. She is an accounting graduate of Minnesota State University and has completed several MBA classes at Indiana University. Prior to forming Experient Consultancy, Inc., Anita was the CFO of InterCambio Express, Inc., a principal MSB offering money transmitter services to the Hispanic population. In addition, she has been employed as an Engagement Manager providing Corporate Cash Management consulting services to clients of Crowe Horwath, LLC, a national CPA firm; was the Corporate Cash & Tax Manager for Shelter Components Corporation, a $500M public manufacturing and warehouse distribution operation and as well a tax compliance professional for a regional Iowa CPA firm. While employed at Crowe Horwath, Anita published several articles on Cash Management and has been a featured speaker at several regional Treasury Management Conferences and bank seminars. In her spare time, Anita serves as a board member on the Beacon Hospital Finance and Medical Group professional boards and provides administrative support to My Happy Place, a not-for-profit entity that does bedroom makeovers for critically ill children and women with cancer. Anita brings many years of practical hands on knowledge from her experiences in tax, finance, administration, consulting, board services and executive management.
Connect with Ms. Knudtson on LinkedIn.