The Impact Of Cash Flow Management On The Organizational Performance (A Case Study Of Guinness Plc Benin City)
The Impact Of Cash Flow Management On The Organizational Performance (A Case Study Of Guinness Plc Benin City)
Abstract
This research project seek to reveal that making cash management a business priority means recognizing that profits do not matter if you cannot make payroll or pay your bills. Businesses fail for any number of reasons: poor management, poor product development, weak marketing, and, as evidenced by scores of accounting fraud cases, deliberate and egregious misuse of funds. But it is far more common, even for companies that do everything else right; to still fail because they failed to manage their incoming and outgoing cash flow. Chapter one of this research work deals on the background of the study, statement of the problem, significance of the study, scope of the study research question, definition of terms etc. The researcher then move on to chapter two where she was opportune to show what cash management really is in its natural term. Chapter three is all about research methodology, while chapter four takes on the presentation and analysis of data. Finally, chapter five, is all about summary of findings, conclusion and recommendation.
Chapter One
Introduction
1.1 Background of the Study
Cash flow is generally acknowledged as the single most pressing concern of the Small/Medium Scale Enterprise (SME). In its simplest form cash flow is the movement of money in and out of your business. Cash flow is the life-blood of all growing businesses and is the primary indicator of business health. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work.
While the basic principles of effective cash management are relatively simple, in practice the actual activities necessary for monitoring, managing and forecasting cash can be cumbersome. This is largely because the data needed for different cash management activities exist in different sources, both inside and outside the organization, and is often difficult to access and work with.
By understanding the key areas of activity for effective cash management, as well as the sources of data necessary to accomplish each activity, we can establish a cash management system that provides easy access of needed information. Additionally, the best cash management system is one that is cost-effective, utilizing existing sources of information to the highest degree possible.
The irony of expending a disproportionate amount of cash for a cash management information system is surely clear to all finance professionals.
Cash flow can be defined as the movement of money into or out of a business, project, or financial product. It is usually measured during a specified period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation. Jimmy Wales (1991).
Cash flow management can be defined as the process of monitoring, analyzing, and adjusting your business’ cash flows. Jimmy Wales (1991: 4).
For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. You will not be able to stay in business if you can not pay your bills for any extended length of time.
1.2 Historical Background of Guinness Nigeria Plc
The firm Guinness Nigeria Plc came into existence in year 1950 with the sole aim of importing and distributing Guinness stout from Dublin for eventual sales in Nigeria. Due to the success of the product in the country it gave rise to a decision to establish a small brewery in the year 1962. The foundation stone of Guinness was laid at Ikeja on the 31st January 1962, by Arthur Benjamin Francis Guinness now the Earl of Irish to which titles he succeeded on his grandfather’s death until 1967 in active services during the 2nd world war.
Guinness Nigeria is a subsidiary of the prestigious Diageo Plc of the United Kingdom. The brewery was the first outside of Ireland and Great Britain. Other breweries have been opened over time – Benin City brewery in 1974 and Ogba brewery in 1982.
Guinness Nigeria produces the following brands – Foreign Extra Stout (1962), Harp Lager Beer (1974), Malta Guinness (1990), Satzenbrau (1995), Gordon’s Spark (2001), Guinness Extra Smooth (2005), Smirnoff Ice (2006).
Guinness Nigeria Plc is a company that believes in enriching its communities. This it has achieved by embarking on laudable Corporate Social Responsibility projects in several communities in Nigeria. These projects are Water of Life initiative, which currently provides potable water to over 500,000 Nigerians spread across several rural communities, from Northern to Southern Nigeria; scholarship and Guinness Eye Hospitals in three cities in Nigeria.
Nigerian Guinness is said to be twice as strong as Irish Guinness. In the 1800s, the Irish brewed the Guinness twice as strong, due to a fear of evaporation on the long voyage to Nigeria. However, the alcohol did not evaporate, and to this day Nigerians brew their Guinness twice as strong.
Guinness Nigeria limited became a public company In 1965 and was one of the first companies to be quoted in Nigeria stock exchange with shares being offered to Nigerian shareholders, 1200 Nigerian held 20% of the equity.
In 1971, a decision was taken to build a new Brewery at Benin at a cost 12 million to brewery larger beer, this was the biggest brewery ever built in Nigeria.
The company believes that investment in the training and development of its staff are wise investments. This has resulted in the establishment of training centers in Benin and Lagos (Ikeja).
Following the ban on importation of methods barely the company has conducted research into the use of maize and sorghum in place of malt in production of the different brands of beverages.
In the Nigerian market, Harp lager beer gained a remarkable success alongside Guinness stout, due to its good quality too hence received a wide patronage and now known as Guinness Nigeria PLC.
It was merely up to a decade of the brewery and marketing of harp that its brand loyalists started shifting their interest to the other hand. The complaint raised by Harp patronizes for gradually changing preference was as a result of the carelessness on the part of the brewers to eradicate particles discovered in the final product and these were major set-backs suffered by Guinness Harp.
In the year 1995 a new product line “satzenbrau” was in the market and it received attention in Lagos and west Ibadan to be precise for now.
In 1990 another product line “Malta Guinness”, was also in the market and it has received attention all over the country and outside the country.
It indeed received acceptance and as such requires effective management system, to guide against the future of all lines of product carried out by Guinness Nigeria Plc. (www.Guinnessnigeria.com).
1.3 Statement of the Problem
One of the major problems why this research is carried out is the existence of negative cash flow in some organizations in Nigeria. Negative cash outflow occurs when your outflow of cash is greater than your incoming cash. This generally spells trouble for business organizations in Nigeria, although there are steps that can be taken to remedy the situation and generate or collect more cash while maintaining or cutting expenses, but taking this steps is never an easy task.
Achieving a positive cash flow does not come by chance. You have to work it out. You need to analyze and manage your cash flow to more effectively control the inflow and outflow of cash.
Again, the problem while this research work is carried out is to look into the impact of cash flow management on performance of an organization using Guinness Nigeria as a case study, and to suggest and give good recommendation on the system of cash management in an organization that will help the organization.
1.4 Objective of the Study
The objective of this study is basically as follow:
- To ascertain the impact of cash flow management on organizational performance.
- To examine the impact of cash flow management performance on the organization.
- To examine how cash flow management has helped in achieving an organizational goals.
- To examine how cash flow management has helped Guinness Nigeria Plc in achieving organizational objectives.
- To give a literature review of what cash flow management is all about.
- To examine the advantage and the cost of cash flow management in organization.
1.5 Research Question
- Does strategic cash flow management impact the organizational outcome positively?
- Is there any relationship between cash flow management and organizational performance?
- Is strategic cash management really suitable for all kind of organization?
- Has cash management impacted positively on the performance of Guinness Nigeria Plc?
- Can any staff take part in the process of strategic cash management?
- Has the practice of cash flow management been easy in Guinness Nigeria Plc?
1.6 Hypothesis of the Study
Hypothesis I
- Ho: There is no relationship between cash flow management and organizational performance.
- Hi: There is a relationship between cash flow management and organizational performance.
Hypothesis II
- Ho: Strategic cash flow management does not impact the organizational outcome positively.
- Hi: Strategic cash flow management impacts organizational outcome positively.
1.7 Significance of the Study
The researcher generated by the postulation of the study can enrich the literature on cash flow management and enhance people and student understands of the concept.
This study will be useful to most organization that needs the impact of cash flow management in their organization also in other organizations and institutions. Government can use the finding and the recommendation of this study to improve the qualities of her organization in the area of cash flow management.
1.8 Limitation of the Study
This research work is limit due to some factors:
Time factor:
The time giving is too infinitesimal for me to carry out the project work accurately.
Finance:
This also restraints me in carrying out my research work as being expected.
1.9 Scope of the Study
This project work is designed to cover every aspect that has to do with impact of cash flow management in an organization and functions with the duties of it. In a country, organization and how it will be regulated when it has been adopted into the system.
The area covered in the research work is limited to Guinness Nigeria Plc, Benin City, in which the population of the study and the sample size of the study were derived.
1.10 Definition of Terms
i. Cash flow:
The total amount of money being transferred into and out of a business, especially as affecting liquidity.
ii. Organizing:
This is determined of activities that need to be done in order to reach the activities to the proper personnel.
iii. Motivation:
This is an inner state of minds satisfaction which energizes or encourages someone’s behavior towards the entailment of the objectives.
iv. Productivity:
This can be defined as efficiency with which work is done, the amount of work done in a certain work.
v. Responsibility:
This is the duty to perform certain assigned tasks in a satisfactory manner.
vi. Delegation:
Delegation is the assignment of authority and responsibility to other sub-ordinate in order to carry out certain assignment.
vii. Management:
The organization and coordination of the activities of a business in order to achieve defined objective. Management is often included as a factor of production along with‚ machines, materials, and money. According to the management guru Peter Drucker (1909-2005), the basic task of management includes both marketing and innovation.
viii. Organization:
A social unit of people that is structured and managed to meet a need or to pursue collective goals. All organizations have a management structure that determines relationships between the different activities and the members, and subdivides and assigns roles, responsibilities, and authority to carry out different tasks. Organizations are open systems–they affect and are affected by their environment.
Chapter Five
Summary of Findings, Conclusion and Recommendation
5.1 Summary of Findings
Cash management is the movement of funds through financial institutions to optimize liquidity.
It is the management of corporate funds to increase interest income earned by maximizing investments and/or reducing interest paid by minimizing borrowings.
Cash management uses the knowledge of funds movement through the banking system, coupled with banking services and other financial products, to optimize liquidity. It is the scheduled gathering of information about a company’s cash flow, its receipts, disbursements, and balances. This information is used to manage these elements of working capital.
Effective cash management ensures the timely provision of cash resources necessary to support the company’s operations. With the use of basic cash management tools and techniques, cash becomes a corporate asset that contributes directly to the bottom line. Whether a company is flush with cash or experiencing a shortfall of funds, good cash management is critical to the success of every company.
Cash management is a financial discipline that uses the same principles, regardless of the type of business, size or age of an enterprise. Cash management is not an accounting function. The accountant records and reports transactions historically; the cash manager plans and executes these financial transactions. Cash managers use techniques, products and services to efficiently manage cash resources and satisfactorily resolve cash shortages or surpluses.
Cash flow is generally acknowledged as the single most pressing concern of the SME (small/medium scale enterprise). In its simplest form cash flow is the movement of money in and out of business organization. Cash flow is the life-blood of all growing businesses and is the primary indicator of business health. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work.
The management and analysis of a company’s cash flows. Careful cash flow management allows a company to estimate the amount of cash that it will have on hand at any one time, project trends in cash inflow and cash outflow, and evaluate whether a shortfall or surplus in cash could potentially occur.
5.2 Conclusion
The stud as has shown that a strategic cash flow management is the life blood of all businesses and is the primary indicator of business health. It is generally acknowledged as the single most pressing concern of most small and medium-sized enterprises (SMEs).
As outlined at the outset, cash flow is the life-blood of all growing businesses. Cash flow has to be managed.
Cash management is as much an integral part of the business cycle as any other part of the process. The effect of cash is real, immediate and, if mismanaged or not managed, it is very unforgiving. It can be your ruination, but with care will be your servant and reward.
This research has looked at cash-flow management. Hopefully, we have helped illuminate where cash comes from and where it goes in the cash flow cycle and provided you with insight into the basics of cash management. It cannot be exhaustive but, hopefully, it has touched on all the areas of immediate importance for the survival and future development of your business.
Remember, sound cash management will give your business just as much of an edge in your transactions as, say, an improvement in your manufacturing process or service delivery, control and prosper.
5.3 Recommendation
For an efficient and effective cash flow management, the organization under study is recommended to:
- Understand the components of working capital and know what portions of its total assets that are invested in each type of current asset.
- Calculate the appropriate financial ratios and compare to the industry average to evaluate the relative health of the business.
- Figure out the cash conversion cycle for the business, and try to shorten it following the guidelines presented in this report. Aim at faster collection of receivables and slower disbursement of payables.
- Grant credit only to credit-worthy customers. Use the 4 Cs of credit to evaluate “credit worthiness.”
- Set a sound credit policy by determining the credit period, collection policy and the discount for early payment. Follow the policy.
- Monitor the company’s receivables position using the average collection period and the aging schedule.
- Finally, As we have seen that cash flow management has impacted positively on the performance of many organizations including Guinness Nigeria Plc. I therefore, recommend that every organization should make cash flow management a business priority.
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