Cash Optimization: Practical Steps to Get a Handle on Your Cash

Cash is the lifeline of your business. Managed well, your company grows and remains stable, but managed poorly, the impact could be devastating.  Proper cash forecasting and optimization enables you to maximize operational efficiency and mitigate risk. If you haven’t been giving your cash the attention it deserves, you are probably endangering your short- and long-term goals. But how can you manage cash better?

It’s never been more important to predict, manage and optimize your cash flow. Forecasting cash can be difficult, but it is possible to significantly improve your forecasts without incurring costs. Technology can help you streamline the process, but it is important to have the right processes in place.

Below are a few practical steps that you can use to get a handle on your cash:

  • Know your company’s strategic direction, including planned acquisitions and major expenditures
  • Identify all of your large recurring flows that are predictable (date and amount) and start with those (tax payments, payroll, rents, etc.)
  • Add in other large dollar items by gathering information from the best possible, lowest cost source (AP, AR, past history, etc.)
  • Communicate regularly with your business units to gather good data
  • Assess and measure the accuracy and effectiveness of your current process (this is the only way to determine if you need to change the source of certain line items to a more accurate one)
  • Re-examine the level of accuracy of your forecasting tools: What data do you have available?  Be as accurate as is required for your company.  That may be extremely accurate for a company that doesn’t have much available credit, but less so for a company that is cash flush in this low interest rate environment
  • Clearly define the frequency by which the forecast should be updated and the length of the forecasted horizon
  • Evaluate your technology platforms: Do you have global visibility across the enterprise?  Do you have an easy way to compare forecast to actuals?
  • Review your contingency plan to ensure that the right steps are taken to reduce the impact of unforeseen events on cash flow

Companies that succeed in good cash forecasting improve decision making. Getting results requires not only accurate identification of opportunities, but also effective implementation of treasury operations. To gain a more comprehensive understanding of your cash, contact Reval.