Cash to a business is like fuel to a car. A car without fuel will not run; a business without cash cannot pay employees and workers stop showing up, vendors that stop receiving payment for goods and services discontinue the supply, unpaid taxes are followed by warrants and monetary penalties –enlarging the amount due. Cash fuels a business’s activities making cash flow essential.
There are a number of things to remember to help keep enough cash in a business which will increase the probability of success –also reducing a lot of stress and pain for the owner.
1. If it is unclear how many dollars a business can afford to distribute to the owner, keep the money in the business until the amount is known. This means resist the urge to buy more things or distribute cash from the business’s operating account to the owner’s personal account –not as simple as it sounds when cash piles up during certain points in the business cycle.
2. Keep good financials. Over time the financials will tell a story. This story will provide a platform for making good decisions. Good decisions are likely to be followed by more net income and positive feelings associated with success. Bad decisions include pain and stress for the company.
3. If a business’s plan is to grow sales it is likely the cash needs of a business will also increase. If a business owner plans to grow sales by 30% and inventory is a component of the business model, the cash needed to purchase inventory is also likely to grow by 30% -this number should be simple to quantify. If a business model instead relies on transactional sales, employees like support staff and/or sales people are likely to increase.
Cash is fuel for a business.