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Cash Flow Optimization – Building Cash Management to be a Competitive Advantage 


Net income from your financial reports can’t be used to pay bills; that’s why understanding cash flow is critical to a business’ success. Even if revenue looks great on paper, a business needs cash to pay suppliers and meet their debt obligations. No industry or business is exempt from this principle; more than one tech company has experienced valuation decreases because they have been unable to bring in enough revenue to cover their operational costs. 

For most businesses, the cash cycle starts by paying for goods or services. That might include rent and capital expenses or buying raw materials as inputs into a final product. The initial funding source is typically a loan or grant, with its own contract for payables embedded within the terms and conditions 

Once the materials or services are ready, then your business goes to work. The finished product is sold to a customer and an invoice is issued, which allows the business to recognize the revenue. The cash cycle is complete once the payment is made, and that cash is used to fund future business and meet company objectives.  

A basic cash management model can give you provide insight into valuation, efficiency and profitability. It also provides tactical benefits by giving you confidence to make critical business decisions.  

Setting up a cash flow model can pose a few key challenges: 

  • Getting the right data at the right time 
  • Manual administration of forecasting  
  • Ensuring the model matches business objectives 
  • Creating a model where assumptions can easily be changed 
  • Applying predictive analytics to gain insights 

Cash model objectives may include: 

  • Short-term cash management 
  • Interest and debt reduction 
  • Medium and long-term planning and budgeting 

Effective cash forecasting can also help make decisions that optimize your business operations. For example, the decision of whether to offer or take advantage of early pay discounts might be clearer based on the insights gained from your model.  

Building the model is the first step, using it to make business decisions should follow. As a company grows and matures, so can the cash model. There are many opportunities to expand and continue improving such as workflow automation, artificial intelligence and robotic process automation. Even without these tools, the operational insights gained using the model can prove valuable to the bottom line. 

To learn more about forecasting and managing payablesreceivables and inventory, visit each of these links or reach out to Amy Julian, Director, Advisory Services, at or 314.687.2314.


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