What Will Your Outlook Towards Maintenance of Liquid Assets to Ensure That the Firm Has Adequate Cash in Hand to Meet Its Obligations at All Times?

FINANCIAL MANAGEMENT

What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all times?

Answer:

MAINTENANCE OF LIQUID ASSETS TO ENSURE ADEQATE CASH IN HAND

A common problem for small business owners is the struggle to maintain adequate cash flow levels. Without cash, a business must eventually close its doors. Understanding and managing the company’s cash flow will help to measure the amount of cash on hand and prepare for cash flow shortfalls in the future.

[a]       Do the Math

Cash flow is the movement of money in and out of a business. Cash inflow is the movement of money into your business, and most likely comes from the sale of goods or services to your customers. Cash outflow is the movement of money out of your business, and is generally the result of paying expenses. By projecting the inflow and outflow of your businesses cash, you can determine the amount of cash that will be available during a designated period of time.

[b]       Prepare Your Profit and Loss Statement

Your business plan should contain several financial statements. If you’re a start-up businessman, base your estimates of cash inflow and outflow on the revenues and expenses listed in your profit and loss statements. Complete your profit and loss statement before completing your cash flow statement. Over time, you will be able to base cash inflows and outflows on actual historical data.

[c]       Develop a Cash Flow Statement

A cash flow statement measures cash flow over time. During your first year in business, you should include a month-by-month cash flow statement in your business plan. If you’re seeking a loan, an important feature of your cash flow statement is that it will show the lender exactly how you’re going to afford loan payments.

In order for a business to stay afloat, it must maintain an adequate level of cash. These are some which we can apply to improve the cash flow in our organization....