What Are the Best Tips for Cash Flow Management?

Cash flow management refers to a management system that uses cash flow as the focus of management and gives consideration to income. It is a management system built around corporate operating activities, investment activities, and fundraising activities. Forecasting and planning, execution and control, information transmission and reporting, and analysis and evaluation. Therefore, the specific contents of cash flow management include a series of systems, procedures, and forecasting and planning systems related to the division of labor organization system of the cash budget, and the implementation and control of the collection system, payment system, and scheduling system. The system also includes an information and reporting system that reports the final results of the comprehensive operation of the parent system and subsystems at the end of a certain period, and an analysis and evaluation system for the cash flow management system, the implementation of the cash budget and the cash flow information itself. This shows that cash flow management is an extremely rich system.

Cash flow management

In the current economic environment, the most important thing for companies is to use cash and capital more efficiently. Through cash flow and

The management of cash flow includes three parts: inventory, receivables, and payables.

From the above explanation, we can see that the payment and return cycle has extraordinary value to the enterprise, so the good management of the payment and return will be an effective guarantee for the rapid development of the enterprise, but we must also see the risk:

First of all, business growth will never be balanced. If the business model is not well-designed, causing people to float, or lacking anti-risk capabilities, as a result, the imaginary business is not completed, then the company will face risks;

With the tremendous pressure many companies face during the recession, many companies appear to be healthy but have collapsed due to cash flow problems. Facts have proved that it is the cash flow that determines the rise and fall of an enterprise. Cash flow management is the foundation of enterprise value creation. Statistics show that in developed countries, about 80% of bankrupt companies are profitable companies from the accounting point of view. It is not due to book losses that cause them to fail, but because of insufficient cash. In China, the issues of earnings quality and cash flow are receiving increasing attention from securities analysts and the corporate world. The research on cash flow management has aroused the attention of academic circles, and cash flow management has become a hot topic in many newspapers and publications. This article analyzes and discusses the related issues of cash flow management from the characteristics of strategic cash flow management.

I. Status and Problems of Cash Flow Management

Although cash flow has become an important criterion for measuring the financial health of an enterprise, "cash is the basic driving force to drive the company forward-a company that lacks cash must fail" has gradually become a consensus in the theoretical and practical circles, but there is no theory about the management of cash flow The industry and the corporate world are paying enough attention. From the perspective of theoretical research, there are few research results on cash flow management. The international research boom on cash flow originated from the bankruptcy of WTGrant in the United States in 1975. The company was the largest retailer of merchandise in the United States at the time. The reason for its bankruptcy was that it paid too much attention to accounting profit and operating performance and ignored the balance of cash flow. The company's bankruptcy and the appearance of many similar phenomena have made many companies realize the importance of cash flow and attracted the research interest of many scholars in finance and finance. Since the 1970s, research in cash flow management has been:

(1) Analyze and study the factors that affect cash flow, mainly studying the impact of cash flow inside and outside the company and its operations. The representative is Denison's research on the effects of sales growth and inflation pressure on cash shortage induction;

(2) The research on the role of cash flow indicators in corporate financial analysis and evaluation, the representative is the financial analysis of Walter's cash flow indicators and crisis warning;

(3) Research on the relationship between cash flow and investment and financing activities, investment decisions and financing decisions, and the relationship between dividend payment behavior and cash flow, mainly based on Jensen's free cash flow theory and Meyers and McGiev's pecking order theory to represent;

(4) Research on the impact of the cash flow information of Eugene Fama, Jensen and others on the effectiveness of external markets;

(5) The research based on the value assessment of cash flow is mainly represented by Jensen's free cash flow theory. Due to the existence of agency costs, a large amount of free cash flow tends to spill out of corporate boundaries in the form of capital. External benefits to enhance corporate value.

From a practical point of view, the practical focus on cash flow and management practices are still very unsystematic and standardized. Although the research results in the theoretical circles have aroused extensive reference in the practical circles. Many multinational companies explore the issue of strengthening cash flow management in their management practices, but most of them focus on cash flow analysis. Most companies just use operating cash flow or free cash flow as indicators into the performance appraisal system and have not established them. Complete cash flow management and control system.

China's initial attention to cash flow has also begun in recent years. It is initially recognized that the inherent vitality of enterprise development is reflected in the cash flow of operations. Therefore, the theory and practice of cash flow are even more scarce.

First of all, there are very few achievements in theories of cash flow management in China. Most of the researches on cash flow have been focused on the introduction of foreign results, the preparation and analysis of cash flow statements, and the lack of management and control methods for cash flow. A systematic study of applied technology and institutional norms.

Secondly, the research on cash flow management in China only stays at the level of company operation and has not been raised to a strategic level. The content of cash flow management is only a general introduction to tactical management such as cash budget, daily flow, process, flow rate and risk early warning. It does not effectively integrate with the development strategy of the company, and it does not match the focus of the company at different development stages.

Third, the means of cash flow management is only focused on post-event analysis, but lacks in-event control, especially prior forecast and arrangement. Finally, since the assessment and performance evaluation system of Chinese companies is still "profit-oriented", they have not paid enough attention to performance quality issues, and the role of cash flow in guiding is still weak. Therefore, the management of cash flows in corporate practice is severe. Lag and Passive Features. Some companies pay attention to cash flow management only when they cannot pay wages, have no money to buy raw materials, and need to use cash to pay taxes.

The author believes that to systematically improve the operation quality of the enterprise and the ability of the enterprise to continuously create value, it also requires the unremitting efforts of the theoretical and business circles. It is necessary to really attach importance to cash flow management from a conceptual perspective and to improve cash flow management to a strategic level. And treat. Avoid talking about cash flow with regard to cash flow. We must start with the characteristics of strategic cash flow, pay attention to important factors and indicators that affect cash flow management, and establish a comprehensive control system for cash flow management.

Second, the characteristics of strategic cash flow management

Corporate financial management goals are the results that the company expects to engage in financial management activities, and it is the direction and guide for corporate financial management behavior. There are different views on the company's financial goals, such as the view of maximizing profit, the view of maximizing earnings per share, and the view of maximizing company value (maximizing shareholder wealth). From a lot of analysis of various viewpoints, the author believes that the choice of corporate financial goals seems to be more reasonable with value as the goal, and the coordination of multi-stakeholders is more realistic. The ultimate indicators are determined by dynamic indicators and static indicators, respectively. Goals and specific (phase) goals are more scientific. The goal of corporate financial management under the modern corporate system is not single, but plural and multi-level. Therefore, when positioning the company's financial goals, it should adhere to a dynamic and development perspective, and should distinguish between ultimate goals and specific goals (or short-term goals). The ultimate goal is the goal that plays a leading role, the source of power for the company's financial management activities and the consciously followed code of conduct; and the specific goal is to reflect the characteristics of the company's financial management activities and the key objectives of the company's management phase under the constraints of the ultimate goal. The author believes that the specific goals of the company's financial management are dynamic, phased and focused, and should be specifically determined according to the company's internal and external environment, according to the different development stages of the company and the focus of the company's management; and the ultimate goal of corporate financial management should be "Sustainable maximization of company value creation". As one of the company's financial management objects, cash flow management must take the company's financial goals as the guide and implement management around the financial goals.

The enterprise life cycle refers to the process of a company's birth, growth, growth, decline, and death. According to the theory of enterprise life cycle, during the development process, enterprises will go through the stages of start-up, growth, maturity, and decline. High-tech companies often have a seed stage. In different development stages of an enterprise, the goals and priorities of the enterprise will be different, and the cash flow cycle will also show different characteristics. Successful managers must be able to accurately analyze and identify the characteristics and positioning of enterprises at different stages of the life cycle, and be able to propose a suitable financial structure based on the needs of cash flows. Therefore, strategic cash flow management must be matched with the characteristics of each stage, highlight the key points, and do not treat them equally. At the same time, we must pay attention to the transformation and coordination of cash flows between operating activities, investment activities and financing activities at different development stages.

To make a dynamic balance between liquidity, profitability, and growth, we must properly handle the relationship between cash inflows, cash outflows, and utilization of net cash flows. In other words, the task of cash inflow management is to maintain moderate liquidity, the task of cash outflow management is to focus on improving profitability, and the main task of cash flow management is to handle the relationship between long-term development and short-term benefits. Good balance between accumulation and consumption.

Third, the strategy of strategic cash flow management

Enterprise value is a comprehensive evaluation of the overall profitability of an enterprise. There are many indicators that can be used to evaluate the value of an enterprise, but many research results show that cash flow is the best method for value evaluation. That is, the value of an enterprise depends on its ability to generate cash flows in the current and subsequent periods. From the perspective of pricing ideas, it is to use discounted cash flow methods to price enterprises. That is, the value of the enterprise is equal to the present value of the expected cash flow discounted by the enterprise at an appropriate discount rate, and value creation is the basis and guidance for the operation of managers at all levels within the enterprise. Strategic cash flow management is not only to study the logical relationship between cash flow and corporate value creation, and to discuss the management of cash flow from the perspective of value creation; but also to study the sustainable model of cash flow to ensure the realization of the ultimate financial management goal of the enterprise.

Free cash flow refers to the cash flow that can be actually used by the owner for income distribution after the fixed asset investment and working capital investment made by the enterprise to maintain the going concern. In short, it is the total amount of cash that can be distributed to shareholders and creditors after paying for valuable investment needs.

Every enterprise must pay close attention to and control the cash conversion cycle, and always pay attention to whether the cash conversion cycle is reasonable, neither too long nor too short. Too long means that the working capital is too large and the turnover rate is too slow. The cycle should be shortened to reduce the working capital investment. Too short means that the working capital investment is insufficient and there may be a certain delivery risk. The judgment criterion is to minimize the occupation of working capital while ensuring normal operation and delivery.

Establish a comprehensive control system for cash flow management

To truly do a good job of cash flow management and achieve the goal of value creation, we must build a comprehensive control system for cash flow management from the organizational, strategic, and operational levels based on factors that affect cash flow.

On the whole, it is necessary to improve the organizational system of cash flow management, and at the same time to develop an index evaluation system for corporate cash flow management control. It is an important guarantee for the effective implementation of cash flow management measures to improve the organizational structure, clarify corresponding responsibilities, and reasonably divide the responsibilities and powers of each responsible unit within the enterprise. Of course, the organizational system of cash flow management must be compatible with the company's business characteristics and management model, and it must be both professional and dependent on the company's organizational structure. When determining the cash flow management control index system, the cash flow generated by operating activities should have a surplus, the working capital amount should be reasonable, the surplus cash should be invested, and the long-term investment and financing plan should be compatible with the ability of the company to generate operating cash flow. As an important standard of the indicator system.

At the strategic level, do a good job of cash flow planning for the strategic cycle of the enterprise. Corporate cash flow planning is the overall and long-term planning of cash flow direction by the company based on internal and external environmental factors and its changing trends. It is a comprehensive strategic project that is instructive and comprehensive for all cash movements and even the use of resources in the enterprise. Directional significance. Enterprise strategy has a long-term and fundamental effect on the overall situation of the enterprise. Therefore, it is necessary to understand the spirit of the enterprise strategy and objectively analyze the environmental impact factors and corporate strategy to ensure that cash flow is in harmony with environmental changes. Only in this way can we ensure that the company's cash flow management does not deviate from the general direction and overall goals set by the corporate strategy, and it can greatly improve the effect of strategic cash flow management. Do a good job of matching and dynamically balancing investment behavior and financing methods. According to the requirements of corporate strategy and objective laws of investment, the strategic goals and principles of corporate financing should be formulated, various effective financing combinations should be sought, and a reliable cash flow strategy should be determined. For example, companies with self-accumulation as their strategic development ideas should pay attention to the dynamic balance between free cash flow and corporate investment expansion. Enterprises with outreach expansion as their strategic development ideas should take the optimization of their capital structure as the starting point and ensure the continued cash flow. Guarantee as the standard, and do a good job of matching and dynamic balancing between free cash flow and direct financing such as equity and indirect financing such as debt to control financial risks. Remember that "short-term loans and long-term use" are taboos of financial risk management. Otherwise, once policy adjustments occur in the capital and financial markets, even temporary cash flow disruptions will be devastating to businesses.

At the operational level, continuous improvement of the inherent quality of an enterprise's operations must be a control objective.

First, establish a sound cash flow budget management system. The fund operation of an enterprise is specifically manifested in fund raising, utilization and distribution, and cash inflow and outflow are its comprehensive manifestations. In the actual operation of the enterprise, the strategic plan must be transformed into the overall budget of the enterprise, and the various strategies of the enterprise must be specified through the cash flow budget. The cash flow budget includes the general budget and daily budget. The total cash flow budget focuses on planning and controlling the company's macro operating activities and investment and financing arrangements to ensure the realization of the company's strategic goals. The daily cash flow budget manages the cash arrangements for daily business activities to ensure cash The continuous, healthy and orderly turnover of the flow ensures the normal operation of business operations.

Second, we must optimize the cash flow management process. It is necessary to make good cash flow procedures and arrangements for internal control key points, the design of internal cash control systems, the arrangement of corporate credit policies and the collection of receivables, the collection of sales proceeds and the arrangement of their processes. The system is used to regulate the cash flow organization, positions, authorization, and internal control procedures and procedures for handling cash receipts and payments. Each internal control link must implement clear responsibilities and performance evaluations.

Third, we must grasp the key factors that affect cash flow. One of the purposes of cash flow management is to improve the efficiency of the use of cash, that is, cash flow velocity management. As mentioned earlier, cash flow velocity can be measured by the cash conversion cycle. Effective cash flow management is to meet the premise of business operation. To minimize the cash conversion cycle. The ways to shorten the cash flow are: (1) shorten the inventory turnover period; (2) shorten the accounts receivable turnover period; (3) extend the accounts payable turnover period.

Fourth, it is necessary to establish a cash flow risk analysis and early warning system that is in line with the characteristics of the enterprise, and to master the methods and techniques of enterprise cash flow crisis management. Cash flow risk is the risk of ineffective cash flow. As the environment in which the company is located is becoming more and more complex, the technology is updating faster and faster, and the product life cycle is getting shorter, it is inevitable that companies will encounter sudden market changes, Risks such as policy adjustments, through the cash flow risk early warning system, establish a rapid response mechanism for risk and crisis management, and maintain good bank-enterprise relationships and loyal customer resources. The temporary difficulties in cash flow can be resolved early.

To do a good job of strategic cash flow management, we should pay attention to the selection of enterprise evaluation benchmarks, that is, the selection of performance evaluation and evaluation indicators must achieve the transformation from subjective accounting income to objective cash flow indicators; we must pay attention to improving the cash flow reporting method and actively learn The foreign research and practice results on cash flow management promote the continuous enrichment and development of cash flow management theory and practice in China. To have a deeper understanding of corporate structure and performance, cash flow management should not be carried out in isolation, but should be taken as an important part of the company's strategic management.