In previous blogs (and vlogs), I’ve looked at turnover and profitability, but this time cash is in the spotlight. So, why cash is important for your business is the topic of this post.
I will be answering the following questions:
- What is cash?
- Why is cash the key financial number in your business?
- Why is cash important to your survival, prosperity and growth?
What is cash?
Firstly, cash is what many people think of when they say money. Cash is physical notes and coins in our wallets, or our purses. It is also the money that flows in and out of our bank account.
In business terms, cash is the actual money that a business has available. On the balance sheet, it is marked as a current asset. What is a current asset, you may ask. It’s the amount of money (or cash) in your account that the company would usually spend within a time span of 12 months. Hence, we begin to understand why cash is important for business.
What is a cash transaction?
A cash transaction is the immediate cash payment for the purchase of any goods, services, or assets.
On the other hand, a non-cash transaction would be one where there is a delay between buying or selling goods and services and the actual cash being paid over or received.
Why cash is important for business – why is it a big deal?
To clarify, without cash your business is doomed
Having cash and managing it is key to a successful business. For example, even if your business makes a profit (congrats by the way) it does not mean that you will survive, grow and prosper. Most importantly, your profit is not the same as cash.
So, why is cash important for business? Cash is what pays you, your bills, your staff loans and suppliers. To put it simply, this means that even a profitable business can run into trouble if the cash dries up. Certainly that well known saying of “Revenue is vanity, profit is sanity, and cash is reality” springs to mind.
Above all, cash is the thing that makes the wheels of your business move.
Survival, prosperity and growth
To sum up, cash will help you achieve your goals, deliver your why, and fuel prosperity and growth – and keep you away from the clutches of poverty. Having a good credit control system, managing your costs and income, helps keep the lights on and the wheels turning.
Check out this short video on why cash is important for business.
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