Question 2 : How do managers manage cash?

The basic objective in cash management is to keep the investment in cash as low as

possible while still keeping the firm operating efficiently and effectively. Cash and marketable

securities are the two components of cash management in which the financial managers are

responsible. It is up to them to see that adequate cash balances and maintained. It is also up to them

to see that the entire cash management is efficiently operated at as low as possible.

As a financial officer, he must insure that the firm has enough cash so that the orderly

processes of production and marketing are not interfered with. Furthermore, it is necessary of the

financial manager to consider the firms known needs for cash, policy on speculative balances,

cushion for unanticipated cash needs and procedure for selecting the right investments for

temporarily warehousing those speculative, precautionary, or otherwise generally excessive cash

balances.

The manager may use following strategies in managing and monitoring cash. The first

strategy is to monitor the cash disbursements needs or payment schedule. Planning and monitoring

your cash flow is one of the most important things you can do when running your business. This

includes addressing cash shortfalls or surpluses if they ever occur. Second strategy is to forecast

cash inflows against cash outflows. Forecasting cash flow is usually done annually and broken

down into monthly amounts. Always record the amount in the month it is expected to be spent or

received. Third strategy is to accelerate cash inflows by optimizing mechanisms for collecting

cash, and avoid misappropriation and handling losses in the normal course of business.