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(^204) Financial Management
subscriptions and donations, books and publications, advertising and publicity.
Such expenditure can be reduced without causing short-term damage to the
business.
There is nothing like shortage of cash (real or induced) to get every manager reviewing
the effectiveness of his expenditure (though there must be strong central co-ordination
to ensure that short-term savings do not lead to longer-term losses):
l Ensuring that responsibilities have been allocated for rigorous progress action on
over-due or disputed customer accounts, and that the cash forecast incorporates
the collection of such items at target dates;
l Scheduling the essential payments in such a way that the cash balance is preserved
with the least impairment of good relations with the creditors.
Once we have the cash back, we have to manage it too till the time it is utilised in
paying for the purchases and other expenses.
The primary purpose of cash in business is to make possible those transactions necessary
to set up the business and run it day by day. Before discussing the control of
cash, therefore, it is helpful to look at the various transactions in respect of which cash
will be received or disbursed. We shall refer to this several times, but for our immediate
purpose the important features are as follows:
l The total cash available in hand or in the bank at any time is represented by the
large box left-centre of the diagram;
l The cash balance with which the business was first established will have been
obtained by an injection of capital as shown in the top left-hand corner of the
chart;
l During the course of the normal trading, manufacturing or service operations of
the business, cash will be paid out for the purchase of goods, materials and supplies,
for wages and salaries, and for various other expenses such as travelling, postage,
insurance and so on;
l The marketable items or services emerging from this expenditure will be
sold to customers who will pay for them and thus reinstate the cash
balance;
l If this cycle of events happened instantaneously, then so far as operating
transactions were concerned there would never be any shortage of cash.