The sign of a growing business is no cash. That’s also the sign of a dying business. Here’s how to make sure you have the first, not the second.
I hesitate to say that money is what’s most important in your business, but it’s what’s most critical. Financial repercussions connect everything that happens in your business to every other thing that happens. The weird thing about money is it’s fungible – unlike almost anything else we value. Since every dollar is like every other dollar, we often don’t realize how big an impact managinge each one can have.
But when cash is tight, your company is like a person in precarious health. Normal things that most people do without thinking must be planned and monitored so they don’t have devastating consequences.
Do it when you need to squeeze every penny. Often for these reasons:
- You’ve got a lot of debt you need to pay off
- You’re growing really fast and need every penny
- You’re in start-up mode or launching a new product and don’t know when the market will respond
Companies should also do it, when they want to maximize profit. Otherwise, you can spend 20 years of your life working at something, make a living (not much more) and have a gnawing sensation that the business should have done better financially but they don’t know where the money went.
Why don’t small companies do it more better?
- They don’t know how
- It can be tedious and not as much fun as other parts of the business (thought it’s not rocket surgery).
- They think that it won’t really affect their decisions because cash is so tight. If that’s true you aren’t doing it right.
I’m working with a client who’s paid off a lot of debt and needs to start maximizing his profit. He’s just beginning to realize how critical every cash decision is. I’ll be posting how we develop the system for him to manage it.
Takeaways:
- Stay tuned for future posts on HOW to manage cash.
- In the meantime, you can see an overview of the concept here.
[tags] cashflow, business tool, manage cash, cash, profit, accounting [/tags]
