Page 6: Conclusion
Even though a business may be trading profitably, it can still fail if cash is not available. Premier League football club (and FA Cup winners) Portsmouth FC is a recent example of a business with liquidity issues.
It continued trading playing games, charging entrance fees, selling programmes and all its other activities producing cash inflows, but it failed to keep control of its cash position. It often paid its players late and eventually it was not able to pay its current debts. One of the biggest of these was to the tax authorities. This meant the club went into administration. Its position appears to be the result of poor financial management and insufficient attention given to 'what might happen'.
Managing cash flow through the business cycle
The future for all businesses is uncertain tastes change, suppliers increase prices, interest rates go up or down, the economy itself presents uncertainty as the business cycle changes. An effective management accountant takes all these possibilities into account not just once, but on a dynamic basis, continually monitoring trends and predicting what might happen. He or she may use software or spreadsheets to play out “what if” scenarios so that the business is ready for any future changes. This information helps in planning strategic decisions for the future of businesses.
Although no-one can predict the future, management accountants have the training, confidence and knowledge of which factors have most impact to help remove or reduce uncertainties. They make sure that the business always has enough, but never too much cash.
CIMA provides the training to equip businesses with management accountants capable of leading ongoing long-term growth.