You've heard that statistic that 50 percent of companies go out of business within five years… well an article by the National Federation of Independent Businesses (NFIB) 82% of those failures can be attributed to cash.
The role of cash in business is often underestimated and misunderstood.
Let's get liquid!
Show Notes
Reminder: What is a Business Principle?
When I talked about what made a business principle I ended up here:
A business principle is a concept that is both foundational and relevant to all businesses.
This set a pretty high bar when it came to identifying what were business principles and what were strategies, missions and tactics.
Cash management made the cut and that’s what I want to cover today.
Why Cash?
Using cash instead of a form of barter system allows us the flexibility to delay purchases, store value and sell goods & services to one market while purchasing goods and services from another. This provides for a wide variety of products and services and flexible timing for purchases.
Why is cash management a business principle?
Managing cash is essential for business. Without proper cash management businesses cannot continue to pay employees and vendors; purchase inventory or expand and grow.
Additionally, cash management is applicable to all businesses since all businesses must have transactions in order to continue operations.
Cash Considerations for Business
- Cash vs. Profit
- Cash In
- Cash Storage
- Cash Out
- Cash Planning
Cash vs. Profit
We need to get this right from the beginning cash and profit are related… but not directly. Positive cash flow means that the cash you have coming into the business is greater than the expenses, investments etc. that you must pay and does not take into account a number of transactions like depreciation that will affect your profitability but not your cash.
If you’re not clear on this, discuss it with your accountant so you get a general understanding of these differences.
Profit is an accounting construct used for business analysis and taxes.
Cash In
How cash is collected can have a significant impact on our cash management and our expenses. Delayed cash in from customer credit and credit card fees add to the complexity of cash management.
While there’s no ‘one size fits all’ plan it’s important to understand the consequences of your cash collection and to be intentional about it.
Cash Storage
In many ways the literal storage of cash is less an issue than it once was there are still a number of considerations to keep in mind if you do store actual cash as well as where you put your money (checking, savings, money market, investments, safe… etc.).
Cash Out
One of the most important aspects of our relationship with cash is how we use it. Who has access and authority to distribute cash (write checks, pay bills etc.). Who has access to using the company credit card (yeah… that’s cash too really)?
Cash Planning
As important as understanding how cash is used another key is when it is used. Business owners must stay in control of the ‘when’ of cash. Remember that you have control of your cash until you’ve mailed the check!
Practical Action
- Don’t take cash or cash management for granted!
- Understand how cash moves in your business and why.
- Keep and eye on trends and act quickly to changes.
What is The Up and to the Right | Small Business | Practical, Actionable, Sustainable Improvements?
Welcome to Up and to the Right, the no-nonsense podcast where we blend your passion with proven business principles and practical tips, empowering you to create the impact and success you envision.
Hosted by Stephen Krausse, the show covers what matters to small business owners, startups, and people interested in becoming entrepreneurs. No buzzwords and no hyped-up trends!
A graduate of Colorado State University's College of Business, Stephen has an academic background that compliments over 25 years of business operations and management experience. He started his first business as a freshman in college in 1987, recording and producing demo tapes for local bands. Since that time, he’s been involved with numerous successful small businesses, including the operation and management of a niche high-tech company with customers and suppliers worldwide.
As a business professional by education and trade, he works with select business owners to blend their passion with proven principles, giving them the edge they need to achieve their unique impact. Stephen is always researching new products, ideas, and innovations - consuming content through audiobooks, podcasts, and online resources, and connecting with other professionals locally and abroad.
Now he’s sharing practical tips and ideas to help you get real work done. This isn’t about fancy solutions requiring a considerable investment or changing how you do your best work. You’ll discover ideas that will allow you to integrate proven principles into the way you already get things done. You’ll get practical ideas to easily replicate, modify, and integrate into what you already do.
Up and to the Right covers topics like getting value out of a business model, outsourcing, hiring for small businesses, working across platforms, productivity and efficiency hacks, building revenue streams, communication and planning, and more! Some episodes will have related downloads available from the show notes page below or unique segments with guests who have industry-specific tips that would be helpful.
It’s time to roll up your sleeves and get to work. Listen to Up and to the Right with Stephen Krausse today.