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Oct 30B2B CFO

Cash is King

Oct 30B2B CFO
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“Cash is King”

The 1st of a 4 Part Series on the Key Focus Points in Running a Business

Back in college, I missed my Mom’s home cooked meals so I would call and ask for recipes in hopes of recreating them myself. I was always amazed at how wonderful the food became with just a few ingredients. My Mother did not have time to make lavish dinners for 7 kids, my grandmother and of course Dad.  Later, as I got more interested in cooking, I would find recipes with a long list of ingredients and steps – measure 1/8 tsp of this, a dash of that, etc. It became more of a job than a passion for good food and the kitchen always turned into a disaster area.  I then decided to simplify and make dinners with just a handful of ingredients. The same goes for my approach to running a business. The recipe for success focuses on four main points:

  • Cash Flow
  • Strategic Planning
  • Information- not data
  • Accountability

Cash Flow

Often, I hear the expression “Cash is King” from small business owners. Lines of credit are maxed out to meet payroll, suppliers are extended beyond terms and late payments are creating penalties and interest – further diluting profitability and damaging important supplier relationships.

Yet, their focus on cash flow is minimal. Inventory levels are higher than necessary, thereby eating up cash and giving rise to potential write-offs due to obsolescence. Excess inventory also takes up important and costly warehouse space.  Accounts Receivable collections are slow and way beyond agreed terms. Machinery and Equipment is underutilized further tying up cash in unproductive assets. These are just some examples. Focus on improving inventory turnover ratios, DSO (Days Sales Outstanding) and asset utilization is critical to an effectively run business.

Proper balance sheet management will make companies more competitive by reducing interest costs and providing them with the cash necessary to effectively manage growth.

Please stay tuned for my future posts re: “Strategic Planning”, “Information- not data” and “Accountability”.

Dan Makuch, CA

photo credit: Fortune Faded – November 16th, 2011 (320/365) via photopin (license)

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