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Success beyond Money
Contents:
• Asset management, cash flow and liquidity for healthy income
• Free cash flow
• Coefficient analysis
• Cash budgets
• How to maximize your cash flow
• Cash and profits
• Keys to good cash management
Asset management, cash flow and liquidity for healthy income
There are many common words in business financing. “Cash King” is the most commonly heard thing. Surveys show that most businesses fail due to cash flow problems. It’s nice to make a profit, but you need a cash flow to keep working.
Startups often find it difficult to generate money and keep it. This is often related to the amount of money needed to finance the debts and transactions that occur and to repay the debts.
An understanding of free cash flow and some ratios will help owners understand cash and debt. It is also important to form a cash budget, manage cash flow, and understand the relationship between cash and profit.
Free cash flow
Free cash flow is the change in an enterprise's operating cash flow (cash generated from an operation), capital expenditure (capital expenditure on your fixed assets), working capital change (working capital difference between periods) and dividends (shareholder payments, if any). What this means is free cash, that’s what’s left in your hands, that you can do anything.
Consider the concept of time value of money. A dollar today will be worth less tomorrow and it is worth more if you do something to make it work for you. The goal of this free cash concept is to find a way to make your unused cash work for yourself.
Free cash flow = operating cash flow - working capital - capital expenditure - dividends
Coefficient analysis
Financial ratio analysis can help you determine how liquid your firm is or how successful it will be in meeting short-term debt obligations. Liquidity is the ability of a firm to pay its short-term debt obligations.
The current ratio and the quick ratio are two of the most commonly used ratios in determining liquidity. The current ratio helps you determine the ratio of your current assets to your current liabilities. Current assets include cash, receivables and inventories, while current liabilities are promissory notes that you typically have to pay within 90 days.
Current ratio = current assets ÷ current liabilities
The quick rate allows you to determine if you can pay off short-term debt obligations or current liabilities without selling any inventory.
Fast ratio = (Cash + sell + securities + receivables) ÷ current liabilities
You can use the receivables turnover to see how much you have converted into accounts receivable. The beginning and end of receivables indicate the value of these accounts at the beginning and end of the period.
Debt turnover ratio = Annual loan sales ÷ ((Initial receivables + Final receivables) ÷ 2)
Cash budgets
You can think about preparing monthly cash budgets to account for your cash. Cash flow statements can be generated on a regular basis to analyze cash flows. This will help you budget the amount of cash you can use for various activities in your business
The purpose of a cash budget is not to set goals for cash, but to anticipate needs. If you prepare your cash budget 6 to 12 months in advance and your needs change, you can change your cash budget.
Cash budgets can solve “whatever it is” scenarios. For example, what happens if you change the speed of your collections or the timing of inventory purchases? This method can allow you to predict the overall results of changes related to cash collection or production.
How to maximize your cash flow
Two of your current assets, inventory, and receivables can have a major impact on cash. Inventory is usually the products you sell. Accounts receivable are accounts that reflect loans to customers. Selling inventories and accumulating your receivables faster can increase your cash flow.
Another short-term strategy is to set a time to pay off your debts. Pay your accounts payable on the due date, not before. This allows you to use it as long as you have cash.
However, care should be taken when using this technique. Some feedback from your suppliers is guaranteed. They also have to pay the bills. To maximize the use of cash and develop relationships with suppliers, agree on payment dates with them, keep your cash as much as possible, and make payments on time.
Cash and profit
Cash flow and profit are not the same. Financial accounting, which is one of the three main types of accounting, is not focused on cash flow. It is focused on net income or profit. Profit and cash flow is related to the profit that is part of your cash flow and that is what is left after you pay your obligations.
For example, when you make a trade to a credit customer, you immediately recognize that trade in your account. You enter debit for inventory and credit for your receivables. You can’t get cash right away.
According to your calculations, you have benefited. However, you still don’t have the cash to trade.
You can see that the difference between profit and cash flow can be huge. For example, if credit sales are growing rapidly, the profit may be much higher than the cash received.
The keys to good cash management
The key to good cash management is to inform yourself using the tools available. Develop an understanding of how your cash flows in your business and create a cash budget to ensure a healthy cash balance.
3. International and national awards
President of the Republic of Uzbekistan Shavkat Mirziyoyev has been awarded a number of orders and honorary titles of foreign countries and international organizations for carrying out large-scale political and economic reforms, leading the creation of good neighborly relations and cooperation in the region, strengthening cultural and humanitarian ties between nations.
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