Practical Cash Management in Small Business | Up and to the Right | Episode 046

The Up and to the Right | Small Business | Practical, Actionable, Sustainable Improvements

Reminder: What is a Business Principle?

When I talked about what made a business principle I ended up here:

A business principle is a concept that is both foundational and relevant to all businesses.

This set a pretty high bar when it came to identifying what were business principles and what were strategies, missions and tactics.

Cash management made the cut and that’s what I want to cover today.

Why Cash?

Using cash instead of a form of barter system allows us the flexibility to delay purchases, store value and sell goods & services to one market while purchasing goods and services from another. This provides for a wide variety of products and services and flexible timing for purchases.

Why is cash management a business principle?

Managing cash is essential for business. Without proper cash management businesses cannot continue to pay employees and vendors; purchase inventory or expand and grow.

Additionally, cash management is applicable to all businesses since all businesses must have transactions in order to continue operations.

Cash Considerations for Business

• Cash vs. Profit
• Cash In
• Cash Storage
• Cash Out
• Cash Planning

Cash vs. Profit

We need to get this right from the beginning cash and profit are related… but not directly. Positive cash flow means that the cash you have coming into the business is greater than the expenses, investments etc. that you must pay and does not take into account a number of transactions like depreciation that will affect your profitability but not your cash.

If you’re not clear on this, discuss it with your accountant so you get a general understanding of these differences.

Profit is an accounting construct used for business analysis and taxes.

Cash In

How cash is collected can have a significant impact on our cash management and our expenses. Delayed cash in from customer credit and credit card fees add to the complexity of cash management.

While there’s no ‘one size fits all’ plan it’s important to understand the consequences of your cash collection and to be intentional about it.

Cash Storage

In many ways the literal storage of cash is less an issue than it once was there are still a number of considerations to keep in mind if you do store actual cash as well as where you put your money (checking, savings, money market, investments, safe… etc.).

Cash Out

One of the most important aspects of our relationship with cash is how we use it. Who has access and authority to distribute cash (write checks, pay bills etc.). Who has access to using the company credit card (yeah… that’s cash too really)?

Cash Planning

As important as understanding how cash is used another key is when it is used. Business owners must stay in control of the ‘when’ of cash. Remember that you have control of your cash until you’ve mailed the check!

Practical Action

1. Don’t take cash or cash management for granted!
2. Understand how cash moves in your business and why.
3. Keep and eye on trends and act quickly to changes.