Cash flow proble ms can be reduced by ma intaining an adequate cash balance,
and by maintain ing stand-by credit facilities such as overdrafts.
Cred it fac ilities are a defensive facility that must generally be arrang ed in
advance, as additional credit cannot usually be raised during times of
financia l distress.
Businesses that operate with narro w ma rgins, with la rge cash inflo ws, large
cash outflows and a small ma rgin of difference, may be more susceptible to
cash flow proble ms that other businesses .
In these cases, larger cash balances or credit fac ilit ies may be required.
1.7.3. Financial Management
Operating a business involves two major issues.
Operational management involves organising the activities of the business to
result in a s mooth and efficient operation.
Financia l manage ment involves managing the cash flow, marg ins, assets,
costs and prices of the business to create a fle xible and profitable operation.
Money is the blood that flows through the veins of a business enterprise.
In some cases, the main business operators may leave the financia l issues to
another party, such as an accountant for a sma ll enterprise, or a chie f
financia l office r or financia l controller in a la rge enterprise.
However, financial issues are the foundation of a successful business
enterprise, and a business cannot be developed and operated successfully
without an understanding of the financial issues involved and attention to
1.7.4. Uncertainty & flexibility
The future is inherently uncertain, and events rarely unfold e xact ly as
Fle xib ility is fundamental to survival when unexpected changes occur.