Cash is a key business strategy that fuels the growth in your business model. The last business in which I served as a top executive had a sign that said, “Cash Is King” and that phrase is so true, especially if your company is engaged in high growth. Having cash puts you in a position of stability because you can finance your own operations through your cash reserves and have better buying power by having available cash.
While you might want to borrow money at times, cash puts you in a better protected position against defaulting on loans. Cash flow indicates your ongoing ability to generate and use cash in your organization. When you borrow money to finance capital purchases such as buildings and equipment, you can sometimes use future cash flow to make your purchases. This is because you can project your current and future cash position using your cash flow acumen and information. Again, if your company is in high growth mode, you may want to build new locations, invest in research and development, renovate your infrastructure or improve your technology.
Here are 5 ways to find or maximize cash in your business:
Create a daily cash report. In this report, either you or someone you assign should write a short synopsis of what changed in your cash and why it changed. You can chart available cash on hand versus your Accounts Receivable (AR) and your Accounts Payable (AP) daily.
Review your Accounts Receivable terms and guidelines for invoices. What terms are you giving to your customers? Sometimes you can get paid faster by just asking.
Make sure your invoices and billing go out on time. It might even be worth hiring someone in the accounting department to make sure your billing goes out in a timely fashion.
Do research and find out if any of your customers are paying late and why. Maybe they are unhappy with something or someone in your company. You need to always be watching those key revenue relationships.
Make sure you can accept credit card payments. Sure, you will have a transaction fee attached to it but many times it is worth it to be paid sooner.
I want you to really pay attention to Key #1. Your Chief Financial Officer (CFO), your Controller or your accounting person, whoever is in charge of the financial part of your business, needs to be creating that cash report on a daily basis. You need that summary of cash sources coming in and going out and a cash projection for the next month. This first key keeps cash a top of mind topic and will allow you to make better management decisions where the organization is concerned.
If your company is headed for the moon, many times, your cash is headed to the pit.
I want to stress that this is a must, especially if you are in high growth mode, because if your company is headed for the moon, many times, your cash is headed to the pit. Growth sucks cash! If you can keep an eye on the sources of cash every day, you can have some real insight into your business financial model.
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