The role of cash flow management in enterprise development

Release time:

2022-12-28

The role of cash flow management in enterprise development

Chen Qianhui

Cash flow is equivalent to the blood of an enterprise. The shortage of cash flow not only hinders the operation of the enterprise, but also may lead to the huge loan scale of the enterprise. High interest costs will erode the profits of the enterprise, forming a vicious circle, and ultimately affect the development of the enterprise. Effective cash flow management can help enterprises to reasonably evaluate their own benefits and solvency, reduce financial risks, and provide an important guarantee for the healthy and sustainable development of enterprises. Its role is mainly reflected in the following aspects.

（1） Understand the internal financial situation of the enterprise

Cash flow management runs through all aspects of enterprise financial management. It is a process of analyzing and managing the operation of enterprise operations, financing, investment and other activities. Cash flow management can be used to reasonably plan the cash of an enterprise in a certain period, and to conduct real-time control, analysis and evaluation of the actual use of cash, so as to maximize the use of enterprise cash. Cash flow management can clarify financial indicators such as capital turnover rate, payment ability and debt paying ability of enterprises, provide a powerful data basis for the overall financial situation of enterprises, and provide a reference for formulating further financial strategies and overall development strategies. Based on this, enterprises can invest cash into projects with higher profitability and make reasonable capital budgets while maintaining daily business needs.

（2） Enhance the ability of enterprises to deal with financial risks

The financial risks faced by enterprises can be mainly discussed from internal risks and external risks. The ability of enterprises to deal with these two types of risks can be enhanced through cash flow management. The internal risks mainly include the difficulty in capital turnover caused by improper capital allocation, and the loss of illegal operation of relevant internal management personnel. Through cash flow management, enterprises can make overall arrangements for existing funds, conduct real-time analysis on the use of cash, follow up and change the existing fund plan in a timely manner, and form a certain supervision role for relevant cash management personnel, improve the internal management standards of enterprises, reduce internal corruption and private use of public funds, so as to enhance the ability of enterprises to deal with internal risks. External risks mainly include financial market and industry environmental risks. For example, changes in the construction market environment caused by government policies or other reasons will affect the development of most enterprises in the market. By using cash flow management, enterprises can conduct risk early warning and risk analysis in advance, and make preparations in advance.

（3） Improve internal control and reduce enterprise costs

Cash flow management can find problems in the financial work of enterprises in a timely manner. Through standardized management steps, relevant work contents can be reasonably refined, so that financial work can be based on evidence. Continuously improve the internal control level of the enterprise through the planning, supervision and feedback of fund use. At the same time, cash flow management can reduce the problem of low cash use efficiency caused by capital dispersion by strengthening the capital management of each subsidiary or branch of the enterprise. Through effective cash budget and plan, we can avoid the waste of funds, realize the rational use of internal cash, and reduce unnecessary costs.

As an industry with long payback period and large advance amount, construction enterprises should not only pay attention to the accounting profits under the accrual basis, but also pay full attention to cash flow management, play its role in enterprise development and prevent capital risks.

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