This 2 part breakdown given an overall understanding of how cash moves through a business.
INCOMING CASH
1. Shareowners capital – these are the individuals who really own the company. They provided the initial cash injection when the company was incorporated (or contributed to the business if it was a partnership). In return, they received shares in the company. They can be asked for money periodically, in return for additional shares. Shareholders capital also includes angel investors and venture capitalists. They will however, seek to be repaid on terms and within a certain time frame and should be regarded as private lenders. Whilst they are invested in the company, venture capital shareholders might wish to direct the management of the company.
2. Borrowing – from private lenders or banks. Can either be short term or long term and are the company’s Lines Of Credit. Some can be negotiated beforehand and some companies resort to short term borrowing several times a year. Security or Collateral is required and interest is payable to service the loans.
3. Marketable Securities or Commercial Paper – usually available to the largest and financially strongest companies only. Essentially, the company goes into the Money Market and issues an IOU to obtain large amounts of cash which it will repay on terms at a future date.
4. Accounts Receivables – theoretically the main source of cash into a business. It is generated through sales and timely payment of invoices. In practice, many companies have poor control of their Receivables. This means that their invoices are not properly followed up and their cash flow becomes unpredictable. This impacts the company’s ability to fulfil new orders, grow, invest in marketing, and pay operating expenses such as salary and debt servicing. Poor control of Accounts Receivables can make or break a company.
© 2006 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
INCOMING CASH
1. Shareowners capital – these are the individuals who really own the company. They provided the initial cash injection when the company was incorporated (or contributed to the business if it was a partnership). In return, they received shares in the company. They can be asked for money periodically, in return for additional shares. Shareholders capital also includes angel investors and venture capitalists. They will however, seek to be repaid on terms and within a certain time frame and should be regarded as private lenders. Whilst they are invested in the company, venture capital shareholders might wish to direct the management of the company.
2. Borrowing – from private lenders or banks. Can either be short term or long term and are the company’s Lines Of Credit. Some can be negotiated beforehand and some companies resort to short term borrowing several times a year. Security or Collateral is required and interest is payable to service the loans.
3. Marketable Securities or Commercial Paper – usually available to the largest and financially strongest companies only. Essentially, the company goes into the Money Market and issues an IOU to obtain large amounts of cash which it will repay on terms at a future date.
4. Accounts Receivables – theoretically the main source of cash into a business. It is generated through sales and timely payment of invoices. In practice, many companies have poor control of their Receivables. This means that their invoices are not properly followed up and their cash flow becomes unpredictable. This impacts the company’s ability to fulfil new orders, grow, invest in marketing, and pay operating expenses such as salary and debt servicing. Poor control of Accounts Receivables can make or break a company.
© 2006 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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