EFFECTIVE CASH MANAGEMENT-OR, ARE YOU YOUR BANKER'S BEST FRIEND?
Presented before the Texas Manufacturing Association, San Antonio-May 1974
Richard D. Parker Manager, Houston Office
In the past year, because of decreased availability of funds and high interest rates, the effective management of cash has become increasingly more important to, and in some cases critical for, the success of businesses. The need for cash planning is not restricted to large business entities, because ultimately all businesses operate on cash. The purpose of this paper is to discuss the role of the cash budget or forecast in cash management and to present a few suggestions that may improve cash flow.
When administered wisely, the cash budget or forecast compels management
planning and assists the manager in operating and improving the profitability of his business by:
Highlighting operating problems
Maximizing the amount of income from short-term investments Anticipating short-term borrowing requirements Recognizing long-term capital needs
In short, cash forecasting is essential to improved cash management.
After one accepts the desirability of cash forecasting, its techniques and the feasibility for the particular business must be considered. Many managers are of the opinion that profit planning and cash forecasting are possible only for large companies with elaborate accounting or management information systems. Cash forecasting is possible regardless of the sophistication of the accounting system. It may be more difficult in some industries and businesses, but generally the only factor limiting the feasibility of forecasting is lack of interest or motivation on the part of management.
The annual cash forecast is an extension of a company's yearly profit plan or budget (see Exhibits 1 and 2) and is formulated by converting estimated revenues and costs on an accrual basis to estimated cash collections and