Most of the business owners and CEOs have shift their attention in profit increases, earning ratios and cost reductions which are used to show elegantly how good an enterprise is performing. However, according to Reider & Heyler (2003), these businesses might forget their most important daily concern – monitoring the company’s cash position. Cash is the most important liquid asset of a business which ensures the payroll is met, new customers are acquired, new products are developed, vendors’ bills and taxes are paid, and most importantly growth and expansion of a business is possible. The amount of cash that a company has on its accounts at a certain point in time portrays the company’s cash position. Monitoring of a company’s cash situation is another way of measuring its financial strength and liquidity. As mentioned by Reider & Heyler (2003), it is the lack of cash which causes companies to fail and not the lack of profit or growth. Not having sufficient cash is a concern of many CEOs who fear they might lose their businesses due to such reason. On the other hand, having too much cash in the accounts can create an opportunity cost called cash drag. By holding too much cash, companies can lose money as the value of cash can decrease due to inflation, when they could have earned more from allocating it in other products with higher returns. In addition to that, we currently face the common situation of negative interest rates, which might lead to the punishment of paying the bank for having too much money on the accounts.
Considering this, the monitoring of cash situation should remain one of the most important aspects for every business. Continuous monitoring of the cash movement ensures the company is on the safe side by not spending more than necessary and at the same time not delaying the payment of invoices. Furthermore, a good cash situation is a safety for potential business crisis and emergencies.
Although it might sound easy, the monitoring of the cash situation is much more complicated for big enterprises. These enterprises have different accounts for a different number of companies. The companies might be located in several countries which use different currencies. When it comes to analyzing these accounts, monitoring of the cash position for each company, no matter the location and currency, requires a special attention of the CEOs.
In the table below we show a typical cash situation where different companies contain different accounts in different currencies.
Although the presentation of the most recent cash accounts is important, what happens when companies use different currency accounts? In this case, an overview of each of the currency account is needed, especially considering the movements in exchange rates. In the result table we would present the account balance in a currency of your choice (e.g. Euro) which uses the most recent exchange rate for the purpose of conversion and the account balance in local currency. The below graph shows the cash situation of accounts grouped by currency.
Furthermore, the monthly account balance per country is shown during the fiscal year 2020. For instance, the account balances for companies located in Germany show a slight decrease in May, 2020.
In addition a daily portrayal of account balances per each currency is needed considering the movement in exchange rates.
The monitoring of the cash situation is an important aspect of every business and it should be a daily concern. A healthy business should have enough cash in its account as to cover the expenses, acquire new customers, develop new products, and potentially grow and expand. However, the amount of cash should not be high as to create an opportunity cost. For this purpose, a timely monitoring of the cash situation is required for every company. The solution provided by dab: GmbH provides a current cash situation as well as a daily and monthly overview of the cash accounts for different companies, different locations, and different currencies.
We are already working on several enhancements of the solution which incorporate machine learning algorithms for future prediction of the cash situation. We will include open payment relevant transactions from both vendors and customers and will be able to predict with a high accuracy the level of cash for future periods of time. As employee costs like salary and social insurance for instance are the third important pillar that influence a company’s cash situation, we will also include a forecast mechanism for these costs.
Reider, R., & Heyler, P. B. (2003). Managing cash flow: An operational focus. John Wiley & Sons.