Mba 503 – Cash Management
Essay title: Mba 503 – Cash Management
Running head: CASH MANAGEMENT
Cash Management
MBA 503
University of Phoenix
Cash Management
Introduction
According to research and past job experiences, cash management is arguably the most crucial aspect of running a business, in the short term and the long term success of the organization. The main reason that businesses fail is reportedly due to poor cash management. (U.S. Small Business Administration.) Cash management and short-term financing affect the operations, assets, and future of the business. Using the proper management and financing skills, a company can be successful and have a well designed and strategic plan for the business market. Implementing the proper techniques or financing options at the correct time in the business’ lifetime will affect the longevity of the company. If the correct decision is executed then the company thrives, on the contrary, if the wrong decision is executed at the wrong time, the result for the business might ultimately result in the demise of the company.
Cash Management Techniques
Cash management techniques include investing, budgeting, spending and saving the business’ money in ways that increase profits or otherwise benefit the company. A few cash management techniques include controlling assets, nature of asset growth, patterns of financing, shifts in assets structure and financing decisions. These techniques are used to alter the company’s financial assets to improve their stance in their respective marketplace as well as the company as a whole. Controlling fixed assets, in most firms, grow slowly as productive capacity is increased and old equipment is replaced, but current assets fluctuate in the short run, depending on the level of production versus the level of sales. When the firm produces more than it sells, inventory rises. When sales rise faster than production, inventory declines and receivables rise, (Block & Hirt, 2005, Chpt. 6, p. 3). Adding assets to the company’s operations adds value and capital to the business as well. The nature of asset growth, like controlling fixed assets, is used to predict the level of production and sales in order to acquire and dispose of the proper assets that are needed for production and running the operations. Patterns of financing uses internal financing (retained cash flow), which is the most important source of financing. Spending exceeds funds from internal financing for most companies and this deficit is funded by issuing debt or issuing new equity (external equity). This is known as “external financing,” but is rarely used when new, (Boehme, 2008, Chpt. 14, p. 1-2). Just like a company controls its assets and the nature of asset growth, shifts in the assets structure affect how a business operates. If more assets are acquired, the more production the business can do, the opposite applies if the business has to sell their assets. Making the correct financing decision for the business can have a major factor on the length of success the company will have. Using a short term or long-term loan, debt, or using the businesses equity; all these will have an effect on the company.
Controlling the company’s assets, the nature of asset growth, and the shifts in asset structure are similar in the part that the way they business uses the assets as leverage to gain an edge in the marketplace. Patterns in financing plays a large role in the future of the company and how that business plans to use their assets, especially financially. Similar to patterns in financing, financing decisions affect the businesses assets and plans for the future by obtaining or disposing of assets. Cash management techniques are vital for a company to have correct and make the right decisions, determining how the business will perform over the next few years and if the company is even looking that far into the future.
Short-Term Financing
Short term financing deals have an assortment of institutional arrangements that are available to a business to help better the operations of business. A few short-term financing methods are trade credit, bank credit, and financing through commercial paper. Trade credit from supplies is normally the most available form of short-term financing and