A Middle Manager’s Guide to Finance – Cash

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The phrase Cash is King is frequently used when educators begin imparting business management wisdom upon unsuspecting students or when owners of family businesses prepare others to assume owner responsibilities. Understanding how cash flows through your company will definitely enhance your strategic thinking skills.

Cash is the vital fuel used to run the engines of business. Simply put, cash enables business.  Enough said.

The management of cash is crucial to the successful business.  Cash flows into the business from a number of sources, e.g. cash sales, accounts receivable collections, and loans.  Cash is used a number of ways in business and therefore flows out of the business, e.g. buying materials, clearing accounts payable, paying back loans, and paying employees or shareholders. Plus, strong predictable cash flow helps businesses negotiate favorable financing terms.

Cash is also an asset and should be subject to standards of productivity.  A company needs enough cash on hand to meet the demand and should be collecting cash quickly and efficiently.  Therefore, cash is subject to budgets and forecasts.  To facilitate the reporting of cash in (sources) and out (uses) Cash Flow Statements are prepared.  Middle managers are rarely involved in the aforementioned activities/reports.  Managers in accounting, finance and treasury keep their fingers on the pulse of cash inflows and outflows as well as cash on hand for the company CFO. 

However, middle managers can and do influence cash flows.

Think about it.  Most everything around your department has something to do with cash.

The building, office furniture and equipment, electricity used to provide light and run the equipment, supplies, etc. were put in place by some sort of cash transaction.  The same can be seen in a warehouse or a doctor’s office. 

Now, let’s think about the nature of your business.  Does your company sell products? Does your company make the products or buy the products to resell.  Both models require maintaining an inventory of product.  Think about inventory as cash waiting to happen. 

Take a moment to think about your role in the company’s need for cash or exchanging goods or services for cash.  Are there activities that could slow down or reduce your company’s need for cash without compromising employees, customers or shareholders?  How could you or your department’s activities accelerate the collection of cash?

Add understanding of how cash flows through your company as an additional decision-making lens for managing your department’s activities.

A final note; cash is not the same as profit.  Cash is the fuel for business. Without it companies will fail.  However, cash does not make the multiple moving parts of business work effectively or efficiently.

A car makes a great analogy.  Keep your eye on the fuel level and make sure your not going to run out before the next gas station. But gas alone does not keep the car moving forward. You need to understand how the car works.  Business is the same. 

My advice, keep an eye on how your activities impact the level of cash in the fuel tank and know what you are looking at when you raise the hood! 

Career Momentum Builder – For the next few days, view your activities and your department’s activities through the cash flow lens.  Make some notes identifying whether or not cash is being used or generated. Have a discussion with your finance manager about your department’s impact on cash and listen to their point of view regarding the possibility for cash flow improvements.

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Comments

  1. mindprep says

    So, can’t the middle managers simply depend on the accounting department to give them the numbers they need?

    • Ken says

      Cash sources and uses reporting probably isn’t info many managers in a company see, as the blog suggests. The goal of this blog is to provide middle managers with a fundamental understanding of how cash flows through a company and to get middle managers to think about how they can favorably impact those flows. The Career Momentum Builder exercise recommends middle managers have a conversation with the financial support side of their business for further specifics related to cash and their company.
      I believe your question may be a bit broader than the subject of this blog. The accounting department should absolutely be the single source for financial performance reports. I hope this blog posting and future postings provide middle managers with an understand of what “the numbers” mean and give them ability to adjust business practices and to ask important questions. Let me know if you have additional questions or thoughts.

  2. OW says

    Good article on cash. As a middle manager, I was always involved in the budgeting for my department. That meant that I would have to meet with executive management at budget time to make my annual ask. The way I prepared for that meeting and the basic way I made my pitch was through doing a department-level sources and uses statement. My sources was a proforma proportion of the total budget ask from the effort I anticipated to expend for each of two business units and an administrative overhead line that was based on some benchmark data that I had researched. The uses side was broken into ongoing obligations (that is the services that were expected by my “internal clients” on a routine basis), what I wanted to do to expand my department’s value to the organization (things like capital expenditures for new software to make the work of my department more efficient and thereby benefit the organization), and the investments in “doing the business of the department” (things like supplies, staff training). So, it is my view that the leader of a department or major project needs to know a good deal about cash and how to plan for and manage it.

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