Business Planning

Techniques for Boosting Liquidity and Unlocking Cash Flow in Your Business

Shahnawaz Alam

Business Planning June, 06 2024

Boosting Liquidity and Unlocking Cash Flow

Businesses today are highly competitive. There are challenges galore, like fluctuating market conditions, effective finance management, and rising expenditure. Let’s go for the techniques for boosting liquidity and unlocking cash flow.

However, organizations can boost business liquidity by implementing the right techniques and improving their cash flow.

Moreover, the new approaches can improve the organization’s financial stability and agility. In this guide, we’ll discuss some of the most proven methodologies and strategies for optimizing cash flow, enhancing financial liquidity, and, finally, navigating liquidity crises.

Understanding Business Cash Management

One of the cornerstones of financial health for any business is effective cash flow management. It involves vigilance in the flow of cash in and out of the business organization.

In addition, cash management can successfully meet short-term obligations and maximize returns on surplus funds.

Business organizations must implement efficient capital management practices and employ robust cash flow analysis methods for boosting liquidity and unlocking cash flow.

One of cash management’s essential requisites is cash flow forecasting. With the help of the most accurate prediction, future cash inflows, and outflows, businesses can understand liquidity gaps in the organization.

In response, they can take the required measures to address the issue. However, businesses can streamline the forecasting process by using advanced financial planning tools like SAP or QuickBooks.

Also, businesses can provide the most real-time insights into the trends in cash flow. It can help companies to make the most informed decisions.

Strategies for Boosting Liquidity

There are some great strategies through which organizations can successfully boost liquidity in business.

A. Build Cash Reserves

Building adequate cash reserves is one of the most fundamental aspects of robust financial management for businesses.

It also takes into account the accumulation of surplus funds. As a result, it assists in creating a financial cushion that can be tapped into during times of need or opportunity:

1. Assess Financial Position:

First, you need to conduct a thorough assessment of your company’s current financial position. Review cash flow statements, balance sheets, and profit and loss statements. This will help you understand your organization’s cash inflows, outflows, and overall liquidity position.

2. Set Clear Goals:

Secondly, the business needs to establish clear objectives for maintaining cash reserves, which are based on the business’s goals, financial projections, and tolerance of risks.

Determine the desired level of reserves. Your cash reserves must be enough to cover operating debt obligations, operating expenses, and potential contingencies.

3. Develop A Plan:

A structured plan is a must for businesses as it outlines finding accumulation goals for building cash reserves.

Moreover, you need to consider factors like frequency, fund sources, amount of contributions, and any restrictions for boosting liquidity and unlocking cash flow. Techniques like premonitions or structured frameworks governing reserve management are also useful.

4. Allocate Profits:

You must work to segregate the profits of the organizations towards building cash reserves frequently.

Besides, you can do it with the help of retained earnings or by setting aside a predetermined net income percentage after taxes and other expenses.

5. Control Expenses:

Organizations need to practice managing rising expenses and making the best use of cash flow. It will help in building reserve accumulation.

Hence, you must evaluate and renegotiate contracts with suppliers and discretionary spending. Also, you need to explore opportunities for cost savings across different business operations.

6. Explore Investment Options:

Determine the investment vehicle that suits your organizaton. It is important for your cash reserves based on your liquidity needs and risk profile.

Also, you must consider investment options like short-term certificates of deposit (CDs), money market accounts, or, say, low-risk investment funds. This helps offer competitive returns while maintaining liquidity.

7. Monitor And Reevaluate:

You should monitor your progress toward building cash reserves closely. Moreover, you must periodically assess your financial strengths, goals, and objectives. You need to adjust your reserve-building strategy in response to market conditions, business performance, or unexpected events.

8. Stay Disciplined:

Adhering to your reserve-building plan must be consistent discipline. Yes, you need to do it even during the period of financial growth and stability.

Besides, you must say “No” to putting your hands into reserves for non-essential expenses and prioritizing long-term financial security over short-term gratification.

B. Implement Short-Term Liquidity Strategies

Short-term strategies on liquidity are helpful in focusing on cash flow optimization within a limited timeframe. It helps to address the shortfalls and address immediate financial needs.

Here are some of the points through which businesses can implement short-term liquidity strategies effectively:

1. Negotiate Favorable Payment Terms:

Businesses can come to the negotiation table with with suppliers or the payment terms. This can help them secure discounts for early payments.

Moreover, by negotiating payment terms, businesses and organizations can steadily uplift the cash flow by deferring outgoing payments. Simultaneously, they can preserve relationships with suppliers.

2. Accelerate Accounts Receivable Collections:

Procuring accounts receivable with utmost promptness is the key to enhancing the flow of cash. Businesses can make good use of early customer payments through discounts or penalties for late payments.

In addition, businesses can implement automated invoicing and payment reminders. This can help them streamline the collection process and expedite cash inflows.

3. Leverage Short-Term Financing Options:

Short-term financing options, such as lines of credit, merchant cash advances, and invoice factoring, can offer adequate liquidity cash flow shortages.

These financing options can offer the right flexibility and quick access to funds. As a result, businesses can meet short-term obligations without depletion of cash reserves.

4. Optimize Cash Conversion Cycle:

You must look to optimize the cash conversion cycle. It can help businesses pinpoint the organization’s weak and inefficient areas in managing working capital.

However, by reducing the conversion time from inventory into cash and procuring receivables, business enterprises can free up cash flow and improve organizations’ liquidity.

5. Monitor Cash Flow Proactively:

Monitoring cash flow is essential for identifying potential liquidity gaps and taking preemptive action. The business organization can optimize the forecasting tools and financial dashboards to provide real-time visibility into cash flow trends. This helps businesses to make the most informed decisions to make the most of the liquidity.

6. Streamline Expense Management:

Analyzing and bringing down discretionary expenses can help you free up cash flow in the short term.

Besides, businesses can pinpoint cost-saving opportunities by scrutinizing expenditure expenses, which include non-essential purchases, travel, and entertainment.

Implementing expense management policies and controls can help enforce cost discipline across different organizations.

C. Enhance Operational Cash Flow

Operational cash flow is any business’s lifeblood. They represent generating cash from businesses’ core operating activities.

Hence, a business must be proactive in maximizing operational cash flow. This is essential for sustaining daily operations.

Moreover, enhancing the flow of cash helps meet financial obligations, which in turn drives business growth. A comprehensive strategy breakdown can help enhance operational cash flow.

1. Optimizing Working Capital Management

To enhance operational cash flow, a business must have efficiently managed working capital. This involves effective management of accounts payable, cash receivable, and inventory levels.

This can help bring down the cash that is tied up in working capital. Businesses can achieve this by:

Streamlining invoice procedure and collection processes. It can help accelerate cash inflows from customers.
Negotiating favorable terms of payment with suppliers can extend the payment deadlines. Moreover, it can help in preserving cash.
Implementing techniques in inventory management, such as demand forecasting and just-in-time inventory, can help bridge down excess inventory. Moreover, it can help reduce carrying costs.

2. Reducing Inventory Levels

Excess inventory can tie up the valuable cash. It can increase storage costs. However, businesses, by optimizing the level of inventory, can free up cash for other operational needs. They can achieve it by:

Conducting regular inventory audits to identify slow-moving or obsolete inventory items.

Implementing inventory turnover ratios to determine optimal stocking levels and reduce excess inventory.
Utilizing inventory management systems and ERP solutions like Odoo or Shopify to automate inventory control processes and optimize inventory turnover.

Cleverence, the Inventory and Warehouse Management Software for Your Accounting or ERP System, provides comprehensive solutions for business. It is effective for businesses that want to streamline their inventory management processes.

Cleverence’s solutions are masters in tracking inventory, managing multiple warehouse locations, scanning barcodes, and mastering complex manufacturing.

Businesses are showing their preference for using this easy-to-use solution. With Cleverence, you can extract more value from your existing system.

When business inventory moves in and out of your operational workflows, your current system updates automatically. As a result, it gives you the right insight into COGS, the true landed cost, and the cash flow impact.

3. Streamlining Business Processes

Streamlining business approaches can be helpful in improving operational efficiency. Furthermore, it can bring down reduced costs.

Besides, it can accelerate cash flow. You consider these approaches effective in boosting liquidity and unlocking cash flow. Businesses can achieve this by:

1. Pinpointing the bottlenecks and the weak areas in business. It is key to the operational processes and implementing improvement processes.

2. Automating the redundant activities and tasks workflows. Furthermore, it can help elevate productivity and lower the cost of labor.

3. Using the right technology solutions, like ERP systems. These developments help integrate and streamline business operations. From order processing to fulfillment, ERP solutions are effective.

4. Negotiating Favorable Payment Terms

Negotiating favorable payment terms with customers and suppliers can be the approach to boosting liquidity and unlocking cash flow. It can have quite a significant impact on the flow of cash. Businesses can:

1. Offer huge discounts for early payment. It can help incentivize customers to settle invoices with utmost promptness.

2. Negotiating terms of extending payment with suppliers. It can help to align payment deadlines and cash flows.

3. Establishing clear payment terms and conditions can help evade discrepancies and disputes regarding delays in the payment process.

5. Implementing Cash Flow Monitoring And Analysis

Regular monitoring and analysis of cash flow are essential for identifying trends, potential cash flow gaps, and areas for improvement. Businesses can:

Utilize cash flow forecasting tools and financial reporting systems to track cash flow trends and projections.
Conduct variance analysis to compare actual cash flows with forecasted amounts and identify discrepancies.
Implement cash flow monitoring dashboards and reports within ERP systems to provide real-time visibility into cash flow metrics and key performance indicators.

Navigating Through Liquidity Crises

Even the most well-managed businesses may encounter liquidity crises due to unforeseen circumstances such as economic downturns or supply chain disruptions. During such times, it’s crucial to have a robust contingency plan in place to mitigate the impact on cash flow and preserve financial stability.

When faced with such challenges, it is imperative to initiate a thorough assessment of cash flow requirements and available resources. This assessment should encompass a meticulous examination of current liabilities, upcoming expenses, and potential sources of liquidity.

Once the cash flow landscape is comprehensively understood, the next step involves identifying opportunities for cost reduction and implementing austerity measures where necessary. This may entail scrutinizing operational expenses, renegotiating contracts with suppliers, and optimizing resource allocation to prioritize essential activities.

Furthermore, exploring alternative financing options becomes paramount during liquidity crises. Businesses may need to consider tapping into lines of credit, seeking asset-based lending arrangements, or even contemplating equity injections to infuse much-needed liquidity into the organization. Each option should be evaluated meticulously, considering factors such as cost, risk, and impact on long-term financial stability.

Continuous monitoring of business liquidity is essential throughout the crisis period. Utilizing sophisticated ERP systems like Infor or Tally enables real-time tracking of cash flow metrics and facilitates data-driven decision-making. By staying vigilant and proactive, businesses can swiftly identify emerging challenges and adjust their strategies accordingly to navigate through the crisis effectively.

Conclusion

In conclusion, effective liquidity management is essential for sustaining business operations, fueling growth, and ensuring long-term financial stability.

Businesses can navigate through challenges with confidence and agility by adopting a proactive approach to cash management, leveraging advanced financial planning tools, and implementing targeted strategies for boosting liquidity.

Remember, the key to success lies in continuous monitoring, strategic planning, and adaptability in the face of changing market dynamics.

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Shahnawaz Alam

Shahnawaz is a passionate and professional Content writer. He loves to read, write, draw and share his knowledge in different niches like Technology, Cryptocurrency, Travel,Social Media, Social Media Marketing, and Healthcare.

Importance Of Capital Goods – What Role Does It Play In The Industry?

Do you want to know whether the Capital Goods are the future or a threat to future investment? If yes, you have to understand the reality of Capital goods before drawing any conclusion over it. You must know some of the fundamental aspects of Capital goods before understanding their functions and importance in the Industry. Without knowing the basics, you cannot draw any conclusions about it. Without an adequate supply of Capital goods, Industry cannot grow on the right track. Therefore, you must possess the correct amount of capital goods to increase the chances of your business growth. What Are Capital Goods? The physical assets of a company that is used in the process of production by a company are known as Capital goods. The consumers will use all these products and services produced by the company using these goods. Different forms of capital goods are equipment, machinery, tools, and buildings. Most importantly, they are not finished products; instead, they are used to prepare them. Importance Of Capital Goods Capital plays a vital role in the modern productive system. Without the use of Capital, you cannot be able to run your business successfully. Therefore, every essential aspect of your business is dependent on the application of capital goods. Also Check: Canned Packaged Goods: Everything You Need To Know 1. It Is Essential For Production Without capital, the production of goods and services is hard to imagine. However, nature cannot provide you with all the furnished goods and services to human beings. Machinery for farming, mining, forestry, and ashing can make things easier and more effective for your production process. However, if a man has to work with his bare hand for agriculture, then productivity will be low. Even in the primitive age, the application of the tools was there for plowing the agricultural field. In the modern age, the application of sophisticated machines has made people's lives more accessible and has increased the rate of efficiency. 2. Enhances The Productivity With the enhancement of technology and specialization, the application of capital goods has become much more important than before. Therefore, within a limited time, more goods can be produced. It's like machinery has made the life of the people easier today. In addition, extensive use of capital has made the USA one of the strongest economies in the world due to the high productivity rate. Many developed countries of the world today are primarily dependent on Capital Goods. So you have to make your choices in the correct direction while improving your business. 3. Importance For Economic Development In the process of economic development, capital occupies a central role. This is because the core of economic growth is capital accumulation. A country’s economic development is solely responsible for the usage of capital goods. Roads, railways, airports, harbors, and other essential facilities we use today are part of the capital. Economies of the USA, Russia, And China are developed because they have a high amount of capital to build their economy. Without the application of Capital goods, no economy can flourish in the long run. 4. Creates Employment Opportunity One of the vital roles of Capital goods is creating employment opportunities in any country. Therefore, creating employment opportunities in a country increases when you use Capital goods. Therefore, employment generation is the actual cause for which its use is crucial. It creates the employment opportunity in two ways or, better to say, in two stages- Firstly it creates employment opportunities when workers are hired to produce the machinery, which will help construct dams, roads, and railways. Secondly, workers will be required to handle the machinery for producing the finished products using the capital goods. Many factories will crop up in completing the dam projects, and many people will get employment opportunities. Thus, the capital formation can increase the chances of employment generation in a nation. First, however, you have to understand the ways before using capital goods to develop your nation's economy. 5. Helps To Convert Raw Materials Into Finished Products No factories in the world can flourish only with adequate raw material. The sales of an organization will increase when with the help of machinery, a company's raw materials will be converted into finished goods. Only by selling the finished goods, the asset side of the balance sheet shows a better figure for the organization. Therefore, the profitability of an organization is heavily dependent on the use of Capital goods. You have to understand the co-relation between Capital goods and their usage in modern-day business. Then, proper planning with the help of adequate execution can make things simpler for your organization. Also Read: Boxed Packaged Goods: The right Guide To uplift Your Business Functions Of Capital Goods There are several functions of Capital goods that many of us are not aware of in the correct order. Some of them are as follows:- It ensures an adequate supply of raw materials for your business. The supply of appliances and heavy machinery can help you increase your production level. Capital goods provide the means of subsistence to the workers. You can enjoy the provision for transportation like Railways, motor trucks to make the supply of your products and services smoother. Employment creation and employment generation for the workers increase when you use capital goods. Thus, capital goods form a vital part of the economy that you cannot ignore at your end. You have to admit the importance of Capital goods in your life. Developed countries of the world have focussed on Capital formation first to develop their economy. Final Take Away Without applying capital goods, no economy can prosper in the long run. Therefore, developed economies of the world make extensive use of the capital to improve their economy to the next level. You can share your comments and opinions if you feel that my opinion is correct. For example, today, the demand for Capital goods has increased due to increased orders. If your company has a higher capital margin, then the chances of the growth of your organization increase. You have to understand the facts before deciding to invest in Capital goods. More Resources: Should You Buy GMER Stock? Everything You Should Know Should You Buy GS2C Stock? Everything You Should Know Is PHI Stock A Good Buy? Everything You Should Know

Best Business Credit Cards For Startups In 2023

Best business credit cards for startups can make your life easier for getting short-term loans instantly. Credit cards can help you to build a good business credit score. Your repayments on time can make your CIBIL score better in the long term. If you are a sole proprietor, then also you are eligible for a credit card. A social security number does not have a significant revenue history. If you are looking for the lowest interest rates, then Credit card history matters a lot. Cashback rewards and other perks offer a good credit card score. Your startup needs to succeed at times to make things happen in your favor. Best Business Credit Cards For Startups Available In 2023 Great business credit cards will offer you high limits for credits. Cash back rewards, balance offers, and travel facilities. Your credit card must suit your goals with complete ease. Try out the best options that can make things happen in your way. 1. Chase Ink Business Cash Credit Card For business owners who are looking for better finances, Chase Ink is one of the best options to avail. It is one of the quality business credit cards for startups. The welcome offer for them is $750. The recommended credit score ranges between 670 -800 to get the maximum benefits of this credit card. Features Of This Credit Card Are As Follows:- The best bonus-earning categories involve phone service, internet, cable, and office supplies. With Chase Ultimate rewards, it is highly compatible. You will receive 1% cash back on all other purchases. 2% cashback, you can redeem on the first $25 spent on restaurants and gas stations. Your contribution margin needs to be in good shape. It will offer you the best options to explore things with ease. 2. American Express Platinum Business Credit Card The American Express platinum business credit card is another best credit cards for startups. You will get the welcome offer of 120K points and an annual fee of $695. The recommended credit score ranges from good to excellent. You must be well aware of it. If your business requires frequent travel to distant places. Some of the core features of this credit card are as follows:- $100 statement for credit entry and global entry for $85 in case of TSA precheck. Extensive travel and shopping protection. You will get upto 5X membership reward points. Minimal non-travel bonuses. Compared to other cards high annual fee. 3. Chase Ink Business Unlimited Credit Card The Chase Ink Business Unlimited credit card is one of the best small business credit cards. You will receive a welcome offer of $750. The recommended credit score must range from good to excellent. You do not have to pay any annual fee and 1.5% cashback rewards you will receive from these credit cards. Some of the key features of the credit cards are as follows:- You will receive unlimited cashback earnings. On a new purchase, you will receive unlimited introductory 0% APR for 12 months. For getting a high sign-up bonus, you will receive a low spending rate. Only foreign transaction fees can apply. Limited protection on travel costs as well as purchases. No presence of bonus categories. Similar kinds of information are present in HubSpot too. You can go through it once for better understanding. 4. American Express Business Gold Card American Express business gold cards will offer you 70K points. You will get an annual fee of $295K points. The recommended credit score ranges from good to excellent. Each billing cycle ranges between $150K. You can earn one point per dollar for expenses. Some of the core features of this credit card are as follows:- You will receive flexible reward and redemption options. With the inclusion of the integration of books, it will deliver you expense management tools. There are no foreign transaction fees are essential. No credit statements. Offers high annual fee. It is not applicable for the lower spending business. Sometimes for ERTC qualifications, credit cards play a vital role in getting the loans on time. 5. Chase Ink Business Preferred Credit Card The Chase Ink business preferred credit card is also the best business credit cards for startups. It offers a welcome bonus of 100k points. The annual fee of $95 fees you will receive from these credit cards. The recommended credit score ranges from good to excellent. You will have the privilege to earn three points for every dollar spent. Some of the core features of the Chase Ink business credit card are as follows:- You will receive multiple bonus categories. Phone and travel protection is possible. There are no requirements for foreign transaction fees. It comprises annual fees. If you want to get a high sign-up bonus, then you have to pay High spend requirements for the sign-up bonus. 6. Blue Business Plus Credit Card From American Business The blue business plus credit card from American business credit cards will help your small business to grow at a rapid pace. You will receive the welcome offer of 15K points. Your requirement to pay the annual fee is $0. The recommended credit score ranges from good to excellent. Some of the core features of the Blue Business Plus credit card from American Business are as follows:- You will have multiple transfer partners. On all purchases, you will get flat-rate earnings. Delivers your generous welcome offer. You can apply for foreign transaction fees. $50K bonus earning cap. 7. US Bank Business Triple Cash Reward The welcome bonus offer you will receive is $500. The annual fee of $0 you have to pay for getting this business credit card for start-ups. The recommended credit score ranges from good to excellent. You will receive business rewards. For a long introductory APR period, you will have to go through it once. You will receive 3% cashback for all the categories. Some of the core features of this best business credit card are as follows:- $100 statement credit for recurring software subscriptions. Upto 5% cash back that is booked on the US bank travel portal. No travel rewards you will receive from this credit card. Low rate outside all the bonus categories. Best Small Business Credit Cards There are several small business credit cards that you can opt for in 2023. Some of the best small business credit cards are as follows:- Chase Ink Business Preferred Credit Card. American Express Platinum Card. Capital One Spark Cash for Business. American Express Blue Business Cash Card. Discover it, Business Card. Wells Fargo Business Platinum Credit Card. U.S. Bank Business Platinum Card. Your business's net operating income also matters a lot here. Try to consider this fact as well from your end. Final Take Away Hence, these are the best business credit cards for startups in 2023. You need to take care of the reality while you want to get short-term loans for your business. It is impossible to make your choices all of a sudden. You can share your views and comments in our comment box. It will assist us to know your take on this matter. Try to develop a better solution that can make things work perfectly well in your favor. Read More Busuiness Related News By Clicking Below!! ERTC Qualification Step-By-Step Guide Top 7 Best Business Ideas For Teens In 2023 What Is Safe Harbor 401K? Benefits And Types

Disaster Recovery Vs Business Continuity – What Are The Differences?

Disaster recovery vs business continuity: Which one is important? - The short answer is “Both.” It depends on the situation you are dealing with. Most companies operate by assuming that their workplaces will maintain their consistent state with changing times. Hence, they try to find comfort in daily routines and rhythm of work. However, there are certain events when a business might face disruption. Hence, businesses need to have a disaster recovery plan and a business continuity plan in place to ensure that the business recovers faster when it comes across a negative situation. In this article, you will learn about disaster recovery and business continuity in general. However, the focus of the article will be on the differences between the two. Apart from those differences, we will also discuss the major similarities between them as well. In addition to this, we will, in brief, share with you how each of these works and how to implement them. Hence, to learn more, read on through to the end of the article. Disaster Recovery Vs Business Continuity – What Are They? If you want to prepare for disruptions in business, you will need to create various strategies and plans, following which you will be able to ensure that the core business functions are intact. This can help the business to come back faster from the uncertain negative consequences it just faced. What Is Disaster Recovery? Amazon Web Services defines disaster recovery as such - “Disaster recovery is the process by which an organization anticipates and addresses technology-related disasters. The process of preparing for and recovering from any event that prevents a workload or system from fulfilling its business objectives in its primary deployed location, such as power outages, natural events, or security issues.” To measure the targets of disaster recovery, two factors are taken - Recovery Point Objectives (RPO) and Recovery Time Objectives (RTO). The failures for which companies make disaster recovery plans are mostly larger-scale disaster events. The plan includes various procedures and policies for the company so that it can recover quickly from the disaster by following them. What Is Business Continuity? According to the Business Continuity Institute, “Business continuity is about having a plan to deal with difficult situations so your organization can continue to function with as little disruption as possible. Whether it’s a business, public sector organization, or charity, you need to know how you can keep going under any circumstances.” You will need a business continuity plan, too, in case of a disaster situation. However, the continuity plan is to deal with the disaster situation so that the organization is able to continue its functioning with little to no disruption. However, you will need to understand here that a business continuity plan does not work at times of a large program or a disaster, which affects the company a lot. It also does not work when a large number of people are associated with a single plan. Hence, many big companies make business continuity plans for each of their departments. This makes each department implement the plan as per its needs. Disaster Recovery Vs Business Continuity – Major Differences Disaster RecoveryBusiness ContinuityFocuses on restoring access to data and IT infrastructure after the impact of the disaster.Involves the creation of additional safety measures for employees. Here, the company creates safety drills and stays prepared with emergency supplies.Disaster recovery is created for disruptions of higher levels, especially when many personnel are involved.Involves the limitation of abnormal or inefficient functioning of the system.Ensures that the organization can return to full functionality following a disaster situation.Focuses on keeping the business operations running even during disasters.It consists of plans and procedures on how to continue business operations. The plans also include who should do what at the time of any disruption.Business continuity planning does not work in situations when many people are involved.Involves limitation of operational downtime.Ensures that all the communication methods of the organization continue working during a crisis. You can see from this table that both disaster recovery and business continuity are complementary to each other. Businesses need to combine both plans to ensure they are prepared for disastrous events. Disaster Recovery Vs Business Continuity – Major Similarities The following are some of the major similarities that you will find between disaster recovery and business continuity: Both are proactive strategies that enable a business to stay prepared for uncertain and disastrous events. Both plans allow the company to minimize the effects of the disaster before it actually occurs and affects the business. Both work quite well in situations of natural and man-made disasters. However, the result of their implementation depends on the situation. Professionals need to review both plans on a regular basis, and some of them need revision with the evolving situation of the organization. How Do Disaster Recovery And Business Continuity Work? According to the University of Central Florida, “Having business continuity and disaster recovery plans in place can help companies minimize the consequences of a catastrophic event. They can also provide peace of mind; employees and business owners alike may feel more comfortable in a work setting where there are clear policies for how to respond to disasters.” To implement these plans for the recovery of the business, the organization needs to create/hire crisis management professionals. These professionals will be responsible for developing and implementing such plans. Apart from that, they are also responsible for evaluating and revising them as per needs and training the employees of the organization to stay prepared. Final Thought Disaster recovery vs business continuity: Hope this article was helpful for you in getting a better idea of both of these terms and how they operate in the organizational setting. Disaster recovery works in situations when the disruption is big and many people are involved. On the other hand, business continuity planning is to ensure business operations are continued in disruptions. Do you have any more recommendations regarding when and how to implement a business continuity plan and a disaster recovery plan? Share your thoughts and ideas with us in the comments section below. Read More: Entrepreneur : Who Coined The Term ‘Entrepreneur’? Intrapreneurship – Definition, Importance, Duties, And Responsibilities What Is a Franchise, And How Does It Work? – Examples, Benefits & More

Matrix Organizational Structure – What Are Its Pros And Cons?

In a matrix organizational structure, the teams within an organization try to bring different roles within the team together. Doing so, unlike a traditional hierarchical structure, they develop a grid-like reporting structure. Basically, the organization combines two or more structures from within. Here, both the traditional hierarchy of management as well as inter-department management is combined. In this article, you will learn in general about a matrix organizational structure and how it works within an organization. In addition to this, we will also discuss the major pros and cons of this organizational structure. Apart from that, we will also discuss the major roles within a matrix organizational structure. Hence, to find out more about such an organizational structure read out through to the end of the article. What Is A Matrix Organizational Structure? The matrix organizational structure basically combines two or more kinds of organizational structure. For example, let’s say you combine project management and functional management. According to Indeed.com, “Additionally, the matrix structure is composed of both a traditional hierarchy of management, where employees are managed by a functional manager, as well as additional project managers who can manage employees across different departments. These two or more managerial systems intersect on a grid or matrix.” In this organizational structure, different management styles are used - where the functional management as well as the divisional management are combined. Here, functional management consists of the traditional hierarchical structure based on the job function and the organization’s department. On the other hand, a divisional manager is the one who presides over the cross-functional team, which consists of representatives of both teams. The matrix organizational structure combines the functional and the divisional managers. This helps the work processes to be done faster. According to the Wall Street Mojo website, “In a matrix structure, team members provide information to a project leader and their department head. This management structure might assist businesses in developing new goods and services without reorganizing teams.” The matrix organizational structure was started in the aerospace industry. This was the time when many firms wanted to get into a contract with US Government employees. They needed to create certain charts that show the structure of the project management team. Read More: What Is a Franchise, And How Does It Work? – Examples, Benefits & More How Does A Matrix Organizational Structure Work? This structure is best understood with the help of an example. According to ChartHop.com, “At the simplest level, an example of an organization using a matrix structure would be one that has set functional teams (e.g. Marketing, Sales, Customer Success) as well as more divisional teams with members from different functional areas that work together on specific initiatives.” A common example of a matric organizational structure is Nike. The company has teams that operate the functional management like merchandising and HR, as well as divisional teams that operate based on location, demographics, and product. Companies and their employees can get a lot of advantages with the matrix structure, especially with the ways that they work within the organization. The teams can share knowledge with each other and can make more informed decisions. Apart from that, the best thing that they will have is better morale within themselves. However, there are problems that you can find inside a matrix organizational structure, too. Some of them include conflict, slowdown of processes, lack of clarity, and more. What Are The Pros Of A Matrix Organizational Structure? According to LinkedIn.com, “One of the main advantages of a matrix structure is that it allows for more flexibility and adaptability to changing customer needs, market conditions, and strategic goals. By creating cross-functional teams that work on specific projects or tasks, a matrix structure can leverage the diverse skills, knowledge, and perspectives of employees from different departments, and foster innovation and creativity.” The intricacy of the matrix organizational structure is one of its main characteristics. You can see from the above sections that the employees are answerable to two managers - functional and project managers. This is because the allocation of resources is in such a way that the human resources are utilized at their highest. The following are some of the major pros of a matrix organizational structure: The departments are able to coordinate better, as the structure brings highly competent team members from different departments to one place. One of the major characteristics of a matrix organizational structure is that it combines the operational and project management frameworks. The communication between two or more departments gets better with the implementation of the matrix organizational structure. What Are The Cons Of A Matrix Organizational Structure? Like most management structures, the matrix organizational structure also has its drawbacks. Here are some of the cons of the matrix organizational structure that you will need to be aware of: There is a continuous need for clarification for the managers regarding their positions, and there are ambiguities in some cases. Hence, there is always a need to define the power dynamics between managers. Apart from the managers, the teams also need clarification regarding their roles in the structure. The individual team members should have a good idea of what their role is at the functional level and what their role is at the project level. This helps in reducing miscommunication between the members. In some cases, due to the involvement of different teams and departments, the decision-making processes can get a bit longer. Apart from that, time is taken since decisions regarding processes need to be made through two different managers. Hence, processes such as quality assurance slow down due to the presence of multiple supervisors. Read More: Entrepreneur : Who Coined The Term ‘Entrepreneur’? Wrapping Up Hope this article was helpful for you in getting a better idea of what a matrix organizational structure is. This structure is best suited for large organizations or organizations that deal with multiple projects. Due to the multiple needs of the organization, the managers can shuffle teams and bring personnel from different departments to work together. The matrix organizational structure helps in better coordination between departments and ensures a better quality of products and services. Do you have anything to add regarding this type of organizational structure? Share your thoughts and ideas with us in the comments section below. Read More: What Is Social Entrepreneurship? – Steps To Become A Successful Social Entrepreneur Business Entrepreneurship – What Should You Know Before You Start A Business? What Is A Venture Capitalist, And What Are Their Functions?

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