Entrepreneurship – from ideas to reality
Entrepreneurship – from ideas to reality

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Entrepreneurship – from ideas to reality

2 Cash management

A growing business needs to make the most of all its resources, including cash. You need to think not only about the cash needed to run your business, but also to grow it. Cash management means assessing the flow of cash in your business and thinking about how you can improve it.

In particular, cash management considers:

  • the agreements and terms you reach with suppliers and distributors, if applicable
  • the speed at which you collect money in from customers
  • the speed at which you pay money to suppliers
  • the amount of cash you want to keep invested in inventory (the stock of goods that are being held for re-sale).

The first steps in external funding decisions are to evaluate your current cash position, as prospective lenders will do the same.

Sales are usually made on account or on credit, which means a delay between making the sale and cash being received. Without sufficient cash flowing around a business to cover that delay between sales and cash receipts from those sales, your enterprise will come to a halt.

Establishing where your business has cash committed can be quite complex as:

  • goods may have been bought and paid for in cash
  • employees involved in manufacturing or operations will need to be paid
  • business overheads – rent, energy or computer costs – may have already been paid out.

All of these running costs must be funded during the period before cash is actually received from customers.

Box 1 Solvency and liquidity

A business remains solvent when its cash resources can satisfy its longer term financial obligations as they fall due. This requires liquid funds, i.e. cash, or assets that can be readily transformed into cash, and so liquidity is the ability of an enterprise to pay its short-term obligations. Good management of working capital will help ensure that profits do become cash.

Next you will look at working capital and how a balance sheet is used to indicate a business’ financial health.


Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371