Emergency Loans – 3 Ways To Get Cash Fast

p>Cash is the most liquid asset for a business firm. While the proportion of corporate assets held in the form of cash is very small, often between 1 per cent and 3 per cent, its efficient management is crucial to the solvency of the business because in a very important sense cash is the focal point of fund flows in a business. In view of its importance, it is generally referred to as the “life blood of a business enterprise”.

Why does a firm need cash? There are two primary reasons for a firm to hold cash: to meet the needs of day-to-day transactions and to protect the firm against uncertainties characterizing its cash flows.

Despite its benefits, cash is an idle resource. The trade-off for cash holding is that you get liquidity but sacrifice profits by foregoing alternative investment options. That is why the financial manager should carefully control cash.

Short-term cash budgeting is the principal means by which cash is managed. Cash budgets, routinely prepared by business firms, are helpful in estimating cash requirement, planning short term financing, scheduling payments in connection with capital expenditure projects, planning purchases of materials, developing credit policies and checking the accuracy of long- term forecasts.

Firms use multiple short-term forecasts, of varying length and detail, suited to meet different needs. The commonly used designs for short-term cash forecasts are one year divided into quarters, or months and one month divided into weeks. A firm, hard pressed with liquidity crunch, may even prepare a weekly cash forecast divided into days. The point to be emphasized here is that these multiple formats serve different purposes and should not be regarded as mutually exclusive. The principal method of short- term cash forecasting is the receipts and payments method.