Cash Flow

Cash — The Lubricant Of Business

Helping you make moneyOne of my favorite expressions is cash is the lubricant of business. A good analogy is an automobile. Without good lubrication the vehicle will not run well, if at all. An engine cannot run very long if it is out of oil. A vehicle will not travel well if the wheel bearings are not properly greased.

The same goes for every business regardless of size. Every business needs cash to operate and survive. Without cash the business cannot operate for very long. With an inadequate amount of cash a business will struggle to operate and survive.

Think about it … cash is the name of the game. Creating and starting a business is an investment, usually with a primary purpose of wealth creation. Wealth is turned into tangible benefits, at some point in time, by conversion to cash.

The larger businesses have professional cash management and treasury functions to insure that the company is well positioned from a cash standpoint.

The small to mid-sized business owner has the same needs for cash management as the large corporation but does not have the same resources to manage it. What is one of the biggest challenges for a small business owner, biggest worries? It is having enough cash to make payroll, to pay the bills, to operate the business. A lack of cash will strangle the business. How many small business owners do you know that have so much cash they don’t know what to do with it? I don’t know many.

As the CFO of a smaller company I have been in the position of not having enough cash on Monday morning to make Thursday’s payroll. We never did miss making any payroll including that Thursday. I can tell you from personal experience that not having enough cash creates stress; I have been there.

A key tool every small business should be using, for cash management, is the 13 week rolling cash forecast. This simple tool will help the business owner sleep better at night. (There are other tools used for cash management but I am only focusing on the short-term cash forecast in this article.) Thirteen weeks are used because it is a rolling quarter and provides a long enough time frame to be able to proactively act upon upcoming cash demands. This tool also helps to bring many other aspects of the business into focus including sales, collections, spending, etc. It does not take very long to create this tool but it will provide tremendous benefits for the small business owner in managing his business.

What is keeping you from utilizing this simple tool? Is it a lack of knowledge by your accounting staff? Is it disbelief that it is important or will make a difference? Having been involved with several successful turn-around situations, I can tell you that the 13 week rolling cash forecast is critical for survival. If you are not using this tool the time to start using it is now.

A well lubricated business has adequate cash to operate and runs smoothly!

No Surprise Cash Flow

Gold CoinsHave you ever had a cash flow surprise? If so, you know how difficult a situation that can be.

Cash is the lubricant of business; without cash everything grinds to a halt.

Every business should be using an operational rolling 13-week cash flow forecast to:

  • Prevent surprises
  • Allow time to proactively deal with cash shortfalls
  • Manage cash resources
  • Be less stressed
  • Sleep better

Contact us to find out how we can help you eliminate cash flow surprises.