How do we know whether we’ve succeeded or
Success in cashflow management is apparent when it thrives (see Table 10.2).
Table 10.2 Recognising success and failure in cashflow management
Success in cashflow management Failure in cashflow management
• Good positive cash balances
Targets set out in the cash forecast
are achieved
Satisfactory cash surpluses over the
medium and long term
• Recurrent cash crises
• Constant low-level cash shortage
• Unable to finance expansion
• Difficulty paying suppliers
At the same time, getting through a crisis is success of a kind and should not be
The same considerations apply to success in handling liquidity, where the
absence of problems constitutes success.
The signs of a liquidity crisis are that it threatens to turn into a cashflow crisis;
then the business will have difficulty in paying its debts on time. Is it possible to
differentiate between problems with managing cashflow, on the one hand, and
liquidity, on the other, since their consequences are similar? Success and failure
in liquidity management are shown in Table 10.3.
Table 10.3 Recognising success and failure in liquidity management
Success in liquidity management Failure in liquidity management
• Stable liquidity ratios
• Absence of cashflow constraints
Clear liquidity reporting and reliable
cashflow forecasting
Increasing proportion of net worth
tied up in working capital or fixed
Cash shortage despite plentiful,
unencumbered assets
• Difficulty rolling over existing debt
It is usually clear what led up to a cash shortage if the issue is one of liquidity.
A more profound issue is whether, merely because there have been no conse-
quences, this indicates success and good management. You may simply have been
lucky. It just happens that no event has triggered those consequences that could
have been avoided if liquidity had been better managed. But you may not be lucky
next week… or tomorrow. Conversely, if you suffer a severe cash shortage then

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