Why cash is king!

Cash is king is an old adage that stands the test of time.  Without cash on hand, even the most profitable business can run into trouble.

There are many reasons why cash is critical to your success. It gives you the ability to act fast when opportunities come your way, invest in infrastructure and manage unexpected costs. A business's cash flow is often cited as a critical factor in its potential for long-term success. For example, a company may have all the revenue globally, but it hit problems without generating cash.

Many business analysts state poor cash management practices as the number one reason why businesses go bankrupt.

Cash flow
For any company to survive, cash flow is the most important financial factor. It may have enviable sales figures and profit margins, but it could still have negative cash flow if its financial operations are inefficient.

Survival during down economies
Every company is going to have periods when things are not running at full potential. For example, consider a global recession that eats into a company's sales. Without cash on hand, that company would be forced to downsize its employee operations drastically and may even have to declare bankruptcy to pay off its fixed expenditures. With cash, the company will be more flexible and better able to survive the downturn.

Emergency Preparation
Like individuals, businesses face emergencies where they need to pay expenses right away. These include legal fees and unexpected costs associated with natural disasters. Since these fees are often not built into a company's budget, businesses must have access to the necessary cash should such situations arise. This is essentially the equivalent of an individual's emergency fund.

Cuts transaction costs
Small businesses need to keep their expenses as low as possible. One way to do so is to avoid electronic transaction systems, including services like wire transfers and PayPal, which often charge excessive fees. By paying with actual cash, businesses can cut back on these fees, significantly reducing their costs and increasing their bottom-line profits, leading to…more cash!

It helps businesses expand in the absence of loans
Many small businesses have had to learn the hard way that lenders are becoming more thrifty with how they loan money. As a result, if a company has cash available, it can better take advantage of opportunities to expand and make significant acquisitions – options that may otherwise not be available in the absence of loans.

Pay your bills faster
Particularly for smaller businesses, cash can be essential for paying bills. However, note creditors only accept money, but other forms of payment can take longer to process, leading to unnecessary late fees. In those cases, paying in cash is the preferred method.

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