Importance of Cash Management in Small to Medium Sized Businesses Essay

Importance of Cash Management in Small to Medium Sized Businesses - Essay faceCash management is important to SME as it regulates cash hunt and prevents prolonged cash shortages that result from in addition much disaccordence between cash influxs and cash out rises.3 Cash inflows come from customers, lenders and investors, while cash outflows allow in payments made to suppliers, creditors and as employee salaries. Negative cash flow occurs when cash outflow is more than cash inflow (due to several reasons such as weak debtor collections, outdated inventory, etc.) in such a situation, the SME is constrained to borrow money from lenders, otherwise it will be in bad trouble the main character of which is non-payment of dues to creditors, suppliers and employees. SME do their best to avoid this scenario and instead strive to attain a positive cash flow, which takes shoot for when the cash inflow is more than the cash outflow. The overall aim of the SME is to generate clear. But the amount of make headway earned is meaningless if the SME does not experience a positive cash flow, simply because it is possible to sink cash, notCash management techniques of SME and consumers are similar in several ways, while they also differ in many ways. SME cannot therefore practice all techniques as consumers and vice versa. There are 5 cash techniques of consumers that SME can practice, as these are sound methods conducive towards generating a positive cash flow as well as profit for the enterprise. Firstly, it is important and practical to prepare a cash flow projection for a certain period (usually 6 months), forecasting the income and expenditure over that period.5 Secondly, it is a erect practice to set aside a certain amount as emergency fund to be used in case of unexpected developments.6 Thirdly, leasing of equipment presents a better alternative as compared to purchase, as the spring does not result in cash blockage that is caused by the latter.7 Fourthly, the overall aim is to create profit (savings in case of