Q295 · How should I plan and manage my company's…

Q295 · Category F: Fees, budgeting and financial planning (Q251–Q300)

Cash flow planning and management are the lifeblood of a business and are even more important than profit. A company can make no profit in the short term, but without cash for even one day it may fail. Effective cash flow management includes: 1. Preparing a cash flow forecast to estimate monthly cash inflows (such as sales receipts) and outflows (such as rent, salaries and payments for goods) over the next 6 to 12 months, so that future funding gaps can be anticipated. 2. Accelerating collection of receivables to recover payments from customers promptly. 3. Managing payables by making reasonable use of credit terms without damaging supplier relationships. 4. Maintaining a healthy cash reserve by keeping enough cash in the bank to cover 3 to 6 months of operating costs and meet unexpected events.

📘 Regulatory basis

Although no regulation directly prescribes a company’s cash flow level, persistent cash flow difficulties may prevent you from paying staff wages or statutory amounts, such as MPF contributions and tax, on time, thereby breaching the Employment Ordinance or the Inland Revenue Ordinance.

📗 Drew Tang's recommendations

“Profit is an opinion, cash is a fact.” Profit in financial statements includes many accounting estimates (such as depreciation), whereas the cash in your bank account is the real resource available for use. We strongly recommend making cash flow management a core agenda item at your monthly management meetings, and keeping a close eye on the health of the company’s “lifeblood”.

📕 Risk notice

The most dangerous situation is “profitable insolvency”: the company is profitable on paper, but so much cash is tied up in receivables and inventory that it cannot pay debts as they fall due, ultimately triggering a liquidity crisis and collapse. This is particularly common in rapidly expanding businesses.

Plan Your Hong Kong Pharmaceutical Licensing Project with Drew Tang

Business Manager Tang Shangyong (Drew Tang) will review your products, operating model, licence type and preparation requirements with you one-to-one. The precise service scope is confirmed in writing; pharmaceutical duties are carried out by legally qualified personnel, and approvals are determined by the competent authorities.

How should I plan and manage my company's cash flow, and why is it more important than profit?

Plan Your Hong Kong Pharmaceutical Licensing Project with Drew Tang