Mastering Cash Flow Management: Strategies for Financial Success

Very few verticals in a modern company can truly be labelled as “crucial.” For example, while marketing is crucial, some companies like Tesla can thrive without a dedicated marketing department. However, without a firm grasp on their finances, even the largest companies risk running out of cash and facing bankruptcy. This makes the finance department one of the most critical verticals in any company.

With this in mind, pursuing an advanced degree program, like the online Master of Business Administration (MBA) in Financial Management from Carleton University, can help young professionals protect their careers and become more critical employees.

The Lifeblood of Financial Stability

Regardless of a company’s size, one simple law remains true: cash is king. Whether it’s Microsoft or a one-person startup, running out of cash can force a company into bankruptcy virtually overnight. With this in mind, cash flow is like a company’s circulatory system that keeps money flowing to all parts of the business. If this money stops flowing, the business stops running.

For young companies, cash management is essential to ensure the company is not growing too quickly. Without an adequate cash management system, a company runs the risk of running out of cash, receiving a poor return on their invested cash or even failing a CRA audit, which could jeopardize the company’s future.

Basics of Cash Flow Management

A financial expert or investor can learn almost everything they need to know about a company by flipping through its financial statements, particularly the cash flow statement.

A cash flow statement provides a detailed picture of what happened to a business’s cash during a specified period, known as the accounting period. Cash flow statements are broken up into three types of activities:

1. Operating: Cash flow generated once a company delivers its regular goods and services. This section includes both revenue and expenses.
2. Investing: Cash flow from purchasing or selling assets like real estate, vehicles, treasuries, patents, etc.
3. Financing: Cash flow from both debt and equity financing.

While it doesn’t necessarily share the full picture of a company, looking at a cash flow statement can provide a quick snapshot of how a company performed over a given period. By examining this document, a financial professional can tell if the company is growing, losing money or staying stagnant.

By analyzing the cash flow statement, a financial professional can also identify potential issues and work to improve them.

Forecasting and Contingency Planning

At its core, managing a company’s cash flow is similar to following a personal budget. It comes down to maximizing income, cutting expenses and setting financial goals.

According to Forbes, there are three main factors to consider when monitoring a company’s cash flow:

1. Monitor spending: Even a rapidly growing company can put itself at risk if it spends too much money. As such, companies should constantly identify areas where they can reduce or eliminate costs to ensure that revenue consistently exceeds expenses.
2. Create a financial plan: Each company should have a clear set of goals for the next month, quarter and year. After establishing these goals, management can set realistic budget targets based on the company’s current expenses and income.
3. Diversify your income: One of the safest ways to protect cash flow is by constantly offering new products and services or expanding into new markets in pursuit of new revenue streams.

Improving Cash Flow

Examining the cash flow statement can provide you with areas to improve the business’s operations to improve cash flow. Here are three actionable ways to do that:

1. Make it easy to get paid: Encourage customers to pay on time by accepting many forms of payment, offering discounts for early payment and sending invoices promptly. This strategy helps keep money flowing promptly.
2. Conduct lease vs. buy scenarios: Leasing equipment usually costs more over the long term, but doing so can also help free up cash flow in the short term. Run the numbers when deciding whether to lease or buy new equipment.
3. Increase your prices: The easiest way to avoid cash flow issues is to make more money, and the easiest way to make more money is to charge more for your existing products — without alienating too many customers. Sometimes, the best way to improve cash flow is also the simplest: raise prices.

Preparing For a Career in Financial Management

If you are interested in a career in financial management, pursuing an advanced degree is crucial. A degree will help differentiate your skill set from other applicants and improve the odds of landing your dream role. Even better, earning an advanced degree in financial management will help make you a more vital employee and protect your career.

For example, Carleton’s online MBA in Financial Management program will teach you everything you need to know about financial reporting, control, performance evaluation and forecasting. This program also offers the following courses, which are crucial for a career in financial management:

• Investments explores the practices and tools that investment managers, analysts and individual investors use to make investment decisions. This course features hands-on learning experiences, allowing students to acquire working knowledge as well as a theoretical understanding of investment principles.
• Performance Measurement teaches students to design and implement performance measurement systems from an organizational integrated systems view.

Learn more about Carleton University’s online MBA in Financial Management program.