Question

1. Why are cash management and cash budgeting important to a company’s survival?

Answer 1

Cash management is a processs under which the company's managers manage cashflows. Cash Budget is a tool or an extended branch of cash management. On one side cash management is the process to manage cash inflows and outflows and on the other hand cah budget is process to calculate the cash availability with the company at a given point of time.Cah Budgeting is a process to budget or plan cash reciepts and payments.

Cash is an integral part of stability , growth and performance, be it for an individual or a company.

Survival of a company to a lot extend depends on the way cash is being managed and budgets are being followed in a company.Cash management and cash budgeting are vital part of company's growth, performance and survival, as it allows the company to be ensured that it has enough cash to handle expenses or even unforseen circumstances for that matter.

Major reasons for cash management and cash budgeting being important for company survival are -

1. It helps the company to well in time be aware of a situation when it can go low on cash.As cash budget and cash management helps to keep track of inlows, outflows, expenses, recipts, company can forsee when it shall run low on cash and plan its activities accordingly.

2.Cash management tell a company about the available funds of comapny and thus, helps to plan if the company shall need to do borrowings to finance its projects.

3. They are also an indicative of financial performance and financial health of the company. A positive and increasing cashflow gives positive signs of company's performance.

4. Cash Budget helps to identify areas where cash outflows are high and thus help to control expenses.

5. Cash management helps to identify fluctuations in inflow and outflows and thus, help to plan investments, projects better

6. It helps to identify unproductive expenses.

7. In bigger companies, cash is maintained only to the extent of working capital requirements. Thus, a well cash managed company can determine its working capital needs better and thus can channelize its funds in a more resourceful mannner.

8. Cash Budgets are useful tools in major financial decisions to be taken by the company such as taking loans, raising funds through issue of shares, buy back of shares, mergers or acquisitions etc.

9. Cash management also helps in dividend policy decisions.

As cash management and cash budgeting play such a vital role in the company's finances, thus, they are indeed very important for company's survival.