Finance / Cash Flow
Cash Flow Diagram
In managing organizational finances there are two fundamental control steps:
- To drive costs down (cost of sales and expenses)
- To drive revenues up (sales and positive cash flows)
In addition, there are four main interventions that people can pursue when it comes to finance or money. These are to seek to:
- Maximize (revenue or sales to existing and new customers)
- Reduce (cost of sales, mainly through working with suppliers)
- Control (expenses or costs, through widespread employee effort and focus)
- Optimize (cash-flows by working with organizational stakeholders)
The finance function within a given enterprise (however small or large it is) may use a wide variety of techniques, methods and strategies to influence and control all of the above factors, some of which will be simple (such as establishing good procedures and controls, managing receivables tightly and running bank accounts efficiently) and some of which will be quite sophisticated (such as insuring or hedging against significant risk, investing free cash cleverly or finding creative project financing options). However, this will inevitably have only a limited impact on the organization as a whole, as many people in many areas are usually responsible for money spent and money made. It is therefore up to each and every individual within the enterprise to both develop a sound awareness about financial matters and to take steps to help to make the management of finance as healthy as possible.
As a way of helping all individuals (and especially those outside the finance or accounting function) to focus on the areas of most financial importance, each of the factors mentioned above have been represented in the grid diagram above to offer a visual representation of four discrete areas upon which we can concentrate our time and energy (either at one time or concurrently) in order to understand and control our organizational finances.