Strategic Management Learning System

Cash management is a problem for almost any firm, large or small. The worst symptom of the problem: your business runs out of cash. For most smaller firms, cash flow is more important than profits, particularly for new businesses. Analysis of smaller and new business successes and failures shows that the company that focuses on cash flow rather than profit lasts longer and is more profitable in the long run. For larger organizations, the departmental or strategic business unit (SBU) budget is frequently as rigid - exceed your spending budget and you are out of business as well!

For financing purposes, cash flow analysis is more important than any other single form of financial management. Bankers and other outside financing intermediaries will almost always look for a cash flow analysis in preference to any other financial statement. In larger companies, the cash budget for a new project or expansion is critical to the overall decision to commit funds and move forward.

In this topic, cash flow analysis is described as an eight-step process that will help you understand your own business better. For many users, this provides a slightly different view than they have had before of the business or their SBU. In addition to improving profits, cash flow analysis is particularly useful in helping to cope with seasonal fluctuations and to avoid money crunches caused by rapid growth. The underlying objective of the process is to make your business planning more profitable and your operational decisions more successful.

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SMLS Workbook #SMLS-01, Cash Flow ~ $12.95

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