Cash is king. This saying definitely holds true for all the corporates in all possible scenarios. Companies that manage their cash effectively and diligently are always one step above the rest. The top management of the companies should diligently study their cash inflows, outflows and make the future plans or projections accordingly. However, in the recent slowdown, owing to liquidity issues, many companies faced turbulent times. This is when they realized that when the going was good, they just went overboard and ignored the golden rule for corporate success at all times i.e. “the cash management is strategic”.

Growth v/s Liquidity…

Although cash management is the key for the companies to reach to the pinnacle, but companies in their quest to grow or outgrow each other totally ignore this basic and strategic necessity.   As Raju Lal, the business partner of Ernst and young says “from 2006 as late as the first half of the current fiscal, the first thing that many of our clients ask is how could we help them reach Rs 5000 crs by 2010”. This statement clearly indicates the growth euphoria that the companies were swinging in prior to the downturn.  All that the top management could think of during pre meltdown days was how to increase their topline and bottom line or how to get ahead of their competitors. Thus, in the pursuit of growth, cash management was completely ignored resulting in to various severities.

Tough times faced by the companies to manage liquidity due to global meltdown….

Global crisis has largely impacted the corporates who were already facing lot of troubles in managing liquidity. In pursuit of cash, firms all across resorted to various drastic steps such as lay offs, debt restructuring, employee benefit cuts etc.  All the companies who made merry in the pre meltdown period learned their lessons in a hard way. Till date, there are loads of companies waiting in the pipeline for raising capital, not for growth purpose but for managing their day to day working operations.

Success story…

Many companies have successfully fought the tough times with vengeance. One such example is of Pantaloon retail. Everybody knows that retail was a sector which was among the worst hit sectors after the global meltdown. Pantaloon retail took vital steps such as redeploying existing staff to new stores, outsourcing the IT function, etc, much before the meltdown panic rushed in. The retail group reaped rich dividends for its actions as their bottom line surged. It managed to survive the meltdown in complete contrast to other retailers such as Subhiksha and Vishal Retail who were on the verge of complete downfall.

Historically, more than 60% of the companies have gone to dumps due to improper cash management. Thus cash management is the key to success for corporates irrespective of the scenario. It should not take one slowdown for companies to realize the importance of cash management. Companies should practice effective cash management on ongoing basis and by doing this they can insure themselves against any adversity.