Cash Management: The Heart of Risk Management Services

Risk management and like services would not become an industry nor a field if it were not for the unpredictable nature of financial investiture. Financial investiture is summarily closer to planting seeds than raising livestock—you can always get a healthier chicken to breed with your hens so you can yield more eggs but you can’t be sure how many and how sweet the apples will be until after a couple of years. That’s why risk management services are so important and that’s why cash management is your best weapon to reduce financial risk.

When talking about risk reduction, “financial” is almost always affixed. It is always in the context of money. In a constantly evolving industrial world, how do you get by managing financial risk for your company’s betterment?

Risk < Reward

There is such a thing as cost effective risk reduction (CERR) and its basic working principle is that no risk = no reward. Taken bluntly, it might look counterproductive to what we’re trying to do, i.e. reduce risk but investments and risks are the heart of innovation and discovery. Businesses continually have to invest in advertisement to be known, in technology to be enabled, and in manpower to stay in business and all these investments are risks. It’s only just a matter of reducing risk—never evading them—that makes the differentiating margin between reward and loss.

Cash Flow Prediction

You will know when a business is succeeding or at least has found stable footing when it has more incoming cash than it has expenses. That’s exactly what cash flow management is all about: balancing collections, income, and accounts receivable with disbursements & accounts payables. Cash flow prediction is more concerned about imbalance in that it needs to know how much you are going to need to pay so that you can predict how much more you’re going to need to make to be able to carry one with future plans. Also called financial forecasting, it might be one of the most important risk reduction mechanisms to make sure that you have the money you need as you go into risk. So what if you go into risk and it doesn’t go as well as you’d hope?

Contingency Fund

After you’ve accounted for how the best scenarios of your investment may play out, risk management services and cash flow prediction considered, you now have to prepare for the worst. After you’ve steered your company’s ship into stormy seas only to find nothing but high winds and no treasure, a contingency fund will paddle you back into calm and stable shores of liquidity. If investing is, in itself, investing in risks, a contingency fund is an investment in safety. A contingency fund does not only work when you need to make a risk so even without any immediate plans to make an investment, you can start on a contingency fund already.

Whether you are a small or medium business doesn’t matter—investiture is a risk you are going to have to take if you are going to make more money and do not want to stay in a limbo of stagnation. Risk management and cash flow management will be your left and right hands to help you break through a bigger market moving forward.