Final answer:
Cash flow management is about monitoring and optimizing the cash receipts and expenses, not just keeping large sums of cash on hand. It helps avoid overdrafts and insufficient funds by ensuring enough cash is available to cover expenses.
Step-by-step explanation:
The statement in the question presents a common misconception: cash flow management is not about keeping large sums of cash on hand at all times; in fact, it is about balancing the amount of cash received and spent to ensure a business can meet its obligations and avoid insufficient funds. Cash flow management is a crucial aspect of personal and business finance which involves monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses.
Maintaining an understanding of cash flow is essential to manage your money effectively. When you balance your checkbook regularly, you help prevent overdrafts and avoid related fees. In essence, the goal of cash flow management is to ensure that you have enough cash to cover your expenses, while also making the best use of any excess cash by investing it or paying down debt.