Why Cash is King

Posted by | April 13, 2018 | Entrepreneurship | No Comments

Whether we like it or not, cash reigns king in our businesses.

Your business cannot have the impact you envisioned if you have a shortage of cash!

A not so surprising statistic came out from a U.S Bank study stating, 82% of all small businesses fail due to poor cash flow management.

Cash is Different Than Revenue.

J.B Maverick describes the difference as “Revenue is the money a company takes in from conducting its regular business operations. Cash flow refers to available cash on hand and may include other sources in addition to revenue from sales of goods and services.” in his article on Investopedia

Every business that has failed has one thing in common; they ran out of cash. But keep in mind, this is NOT about having some cash in the bank, this is about having excess cash you can actually use.

Even if you have revenue, without cash, you will not be able to make decisions with the big picture in mind because you will have to be focused on the short term.

So let’s talk about the positives of having excess cash, and the negatives of having limited cash.

Cash Can Make Your Dreams Come True!

Cash flow is the main topic of this post, but it is of course not the end goal! The goal will be different for every entrepreneur, and every business:

Rewarding yourself and your family: It is always surprising how many businesses we work with that are doing amazing work, with happy employees and happy clients, but they are not taking any money home because every dollar they generate is needed to keep the business sustained.  You should be able to reward yourself for the things you are doing in your business!

Making an impact on your community: One of the beauties of being an entrepreneur is that it creates such a strong trickledown effect that impacts so many things! Continuing to pour all your money back into the business can keep you from making the impact you desire.

Over-delivering for your clients: You can get by if you do the bare minimum to keep them satisfied and not complaining, but having excess cash flow allows you to go the extra mile and really wow your clients!

Investing in your employees: You love and value your employees. You want them to feel passionate and excited about the company, but it is easy to feel stuck when you can’t reward them in a meaningful way! Having an excess cash flow lets you encourage your employees so they continue to be loyal top performers who make the business great.

When you are short on cash, you are suffocated.

Having a shortage of cash can make you feel suffocated. So what exactly happens when cash is tight?

You are reactive: When negative things come your way, you will be forced to be reactive instead of proactive. You can be affected much more by small mistakes.

You are short-sighted: It is very hard to see the long-term goals if you are constantly having to focus on what is right in front of you. Seeing the big picture often helps when making big decisions, because you are focused on tomorrow, not today.

Your employees will suffer: Your employees will not be able to reap the rewards of what they have worked so hard for. Which can be demotivating, and often demoralizing.

You get less joy from your business: This one is perhaps the hardest to accept. Without cash flow, your business will not seem like it is giving out what you put into it. You will be more stressed because it is harder to make the changes you want without the cash flow you need. When things are tight you are in survival mode. Not thriving mode.

Before you can generate excess cash flow you have to know what’s happening to the cash and what is about to happen to the cash.

Interested in learning more about how to connect your goals and vision with your financial metrics? Schedule a strategy call with Kahuna Accounting and we can discuss best practices for driving cash flow, profit, and growth!
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