Good Money Management
For any organization, getting
the most out of its cash resources is not possible by keeping
a tight grip on its monies. How well an organization is run
is best reflected in the ways that it spends its working
capital. If, in the purchase of a fax machine, there is a
possibility of saving even a penny, a smart organization
would find that possibility and make that saving. Mind you,
it’s not the same as penny pinching. It’s one
of those time-tested ways of getting the maximum mileage
out of your cash reserves. And the principles of money management
apply as much to individuals as they do to organisations.
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Good money management is vital if you don’t have enough of it. In the
case of a voluntary organization, the responsibility for money management rests
upon the shoulders of the finance management committee. Such committees usually
monitor the voluntary organization’s finances by careful budgeting. For
control of their cash corpus, they look beyond inactive cash in floats and
go for bank accounts
such as ‘Treasurer’s account’. Such accounts generate more
interest while the principal amount is lying idle.
Term
Deposits
Another good idea on this route is the term deposit. Depending on the timing
of cash needs, one could place the money in a term deposit, thus maximizing
the interest generated.
More
mileage for charity
If you are a charity organization, it is advisable to inform the bank. Because
then the bank will support your effort by adding gross interest to the account.
Charities should utilize the tax benefits allowed them. Tax paying donors can
be encouraged to use covenants or gift aid, because they are entitled to relief
on the payment.
Charity
organizations must maximize their earnings by ensuring
that dues are collected as quickly as possibly and payments
are delayed as far as is reasonably possible. The organization
can use the full credit terms offered by a supplier. However
some care should be taken so as to avoid penalty interest.
Delayed VAT and tax payments to suppliers can be counter-productive
as it may jeopardise future supplies. Secondly, one must
also compare the benefits of a discount offered by the
supplier for early payment, with the loss of interest incurred
by making the payment early.
Tame
the bulls and bears
An even better option would be to invest amounts that
would otherwise lie idle for a long time, into investment
instruments such as stocks and shares. Avoid
the equity route altogether (as you would not want to subject the organization’s
money to the high risk and volatility of the bourses). Opt instead for instruments,
like debt,
that generate steady returns.
Buying
fixed assets
Every organization has to spend a good portion of its
working capital in the purchase of necessary equipment
or fixed assets. Such purchases are known as
capital purchases. Depending on the organization’s resources, it is important
to consider and compare the payment options available when making capital purchases.
The options would include outright payment as well as ‘hire purchase’ or ‘lease
purchase’ schemes. Hire purchase schemes are effectively loans so there
would be a cost of borrowing added
to the overall amount. This needs to be considered against factors such as
inflation rate, interest rate, to determine which one is a better option: outright
payment or lease purchase. Consider also the penalties for early repayment.
Whether
you are an organization or an individual, take particular
care to monitor the movements in your cash reserves, evaluate
the true worth every benefit you get and watch every outgo – including
the tax you pay. If you do all these things then you are
sure to keep debt at bay.
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