Thursday, March 17, 2011

Cash is the King of the Royal Family and Then Some...

We have all heard it and probably seen it to be true in some form of real life situation - Cash is King. We can either be inside the gates and enjoying life at court or we can be outside living as a pauper. Which would you prefer? I know I want to be inside the gate with all the other fine Lords and Ladies.

But on a more serious note, if you are not tending to the court of Cash in your small business, you could be in trouble. You need to be regularly checking the books to make sure you are not in the red and spend when you need to and at other times not spending to carry over the balances.

I recently came across some tips to help protect the cash balance of your business and wanted to share them with you.

1) Cash may be 6 feet under in your business - you may have extra inventory sitting around or equipment you brought and no longer have any use for in the business. Ask an employee to review the physical layout of the business (meaning places like warehouse, storage etc.) or have someone who does not work there come in and question the existence of such items. Once you find the buried cash, sell it to generate revenue and add that to your books.

2) Track your cash - monitor your cash flow reports regularly so you can better manage your small business. You will start to notice signs telling you something is going to happen and practically scream at you to make a change in the operation/sales side of the business. Make sure you ask the people who impact your cash flow what are they doing to drive it up. You may get a P&L monthly but make sure you dig into it and understand what is happening. Where did the cash come in from and where did it go?

3) Sign your own checks - nothing else to be said here.

4) Grow at the pace you can afford - growth is a cash eater and you need to be careful you don't start to grow faster than you can afford. Manage your growth to a rate you can afford while still providing adequate returns on the business to any investor like yourself.

5) Communicate to your bankers- do not surprise these people. If there is one person you don't want to surprise it is your banker. Talk to them about your situation, tell about your first sale and your last sale of the day. If you think you are going to miss a payment, get on the phone and work something out. They want you to be successful so let them help you be just that.

6) Build a stronger castle for the King - the King likes it when you build his treasury (your business net worth) so concentrate on increasing the company's net worth or equity as you grow the business. This growth in equity will allow you to borrow without increasing your debt to equity ratio which is a very good thing for a small business. So watch your equity account and help it grow by putting money aside but don't starve the business by not spending when you need to.

7) Look into new opportunities - Star Trek went where no man has gone before and you may need to do that too to keep your business fresh and growing. Don't be afraid to ask people for their thoughts on your business and what you can do to grow it. Be creative with outreach programs when seeking input.

Remember cash is king but you rule the business so plan to survive, thrive and grow and you will come out on top.

How do you manage your cash accounts? Let me know and share your thoughts and ideas. Let's talk.

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