Cash is King

Many businesses are struggling to stay alive in these uncertain times. The problem is that they don't really have a plan of attack. They are reactive rather than proactive. If you have been lucky enough to be in a strong position up until now, it doesn't mean that you are in the clear. You need to be looking at the data and "reading the tea leaves" on a regular basis.

You need to know what is going on with your customers, your suppliers, your geographic market and any national trends in analogous businesses. Most importantly, you need to be salting away cash that will be there if things slow down for you. Could you survive for six months with no business coming in?

The most optimistic analysts are saying that the economy will begin an upswing in the fall, 6 months from now. What will it take for you to survive for six months? Have you planned for a worst case scenario?

If you don't presently have the cash, how will you get it?  There are basically three places from which cash can be developed. The first is from working capital. You get this cash from your inventory (selling it) and your receivables (collecting them), operations, and, if necessary, the sale of assets.

Operations can provide cash if you can streamline them, cut down on expenses and on time and make your operation more efficient. This can be accomplished by downsizing, assuming you perform that operation with a strategy and a plan that acknowledges the relative value of each position as far as producing cash for the organization. It can be accomplished by shutting down product or service lines that have low margins or long term paybacks. Remember, cash is king.

You have to keep in mind that you need to have the cash to keep your business open. Nothing else is of more relevance in the short term.

In a small business the owner must think like the CEO in having a cash accumulation strategy; the CFO in actually managing the cash, doing the constantly revised budget and projections; the COO in scaling the operations; the VP of Sales in making decisions on which sales are profitable and which aren't and in coming up with a pricing strategy; and the head of HR in deciding about layoffs, furloughs, benefit cuts, deferring compensation, etc.

Big business or small, cash is king. In a crisis it does not matter that you are set up for long term sustainability. It doesn't matter if you have a brilliant marketing plan or a sales team full of "sales animals." All that matters is that you have the cash to get through the crisis.

If you manage your cash strategically and maintain your values and act consistently with them, you will end up in a stronger position that your competitors and you will probably be in a stronger market position than you were before the recession.

Comments

[Lorna]

Thanks for writing this.

[Evening Dresses]

I like Politico and have really enjoyed their online info. Newspaper and print advertising is completely going to the wayside, so it is just natural progression to bring the papers online for all. I wonder what will happen in the future with world online newspapers

[Swarovski Rings]

You get this cash from your inventory (selling it) and your receivables (collecting them), operations, and, if necessary, the sale of assets.