It may sound strange that this is part 4 of the Cash Flow methods. Who has idle cash today? With all the banks and debt that we are mounting in this country, where is idle cash?
If you are forecasting your cash flow and becoming efficient with your income and expenses, you will find idle cash. It is imperative to have idle cash to survive through the downturn in the business cycle. Businesses do not just continue to go up. There are downturns you will want to plan for.
Short term investing is an important task for the cash flow manager. By investing in Short Term investments, you can borrow back that money when your business is in need of cash, or an opportunity arises that will strengthen your core market. You will be able to take advantage of that opportunity. You will also have the confidence to negotiate better knowing that you have that backing. You will not be beholding to a bank to negotiate an interest rate. You can negotiate that interest rate with your own company. You are in control.
Short term investments would consist of money market funds, Treasury bills, commercial paper, and certificates of deposit. Another option would be to pay down any loans, or reduce accounts payable if you are receiving a discount.
Money market funds would be the most liquid, and right now they are not giving a high rate of interest. They are safe and very liquid right now. Treasury bills, commercial paper and certificates of deposit will need more time to mature and are not as liquid. When starting your idle cash program, it is best to use a money market account with a sweep option with your bank to capitalize on receiving interest.
Before you can invest that idle cash, you need to find it. By having a cash flow forecast, you can anticipate that idle cash and start looking for where you want to invest it, when you see it in your checking account.
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