PROFIT
Here’s a concept that might seem controversial to some.
Cash is not about finance. Or accounting for that matter.
Cash for a business is like oxygen to a human. Without oxygen, a human suffocates and death is inevitable. No air. No sustaining life.
Similarly, without cash, a business will struggle to stay afloat. Growth stops. With no forward movement, the company stalls. Then the means to maintain the daily operations begin to contract. No cash means the company will drown under its expenses.
So knowing how important cash is, why would a CEO or business owner leave the knowledge of how much (or little) cash is in the business to a CFO, controller, or even an external accountant. The answer is, he or she shouldn’t. Sure, those individuals should ALSO know about the business’ cash position, but most importantly, the CEO, and I would argue, the leadership team, should also be highly aware of how much cash is or isn’t in the business.
The amount of cash a business has directly correlates to how little or much it can grow.
Owner distributions aside, when cash remains in a business, it can get reinvested to drive growth and new initiatives. This takes me back to my reasoning that the leadership team should be aware of the current state of cash in the business. Laser focus on available cash can allow for “trigger numbers” to be created; that when hit, causes an action to be taken.
One clear example as to why: Hiring. Hiring is an area of focus right now for so many businesses in our community. Is the company even in a position to hire? When we hire, we make a monetary investment in a human – and where does that funding come from? If it is a NEW hire, versus a replacement and it is not revenue generating at the start, that funding is coming from C-A-S-H.
CEOs, do you know the cash value of every hour of your business’ operation? How about every minute? If you and your team are not aware of how much cash is used to operate the business by the hour, by the minute, how do you know if you are improving it or not?
Time is cash. And cash is the life preserver to your business.
Challenge… Could you email me right now how much time it takes from the point a sale is generated through to the collection of the final payment for that sale? Do you need to ask your CFO first? Not knowing this piece of critical information should be cause for concern.
Establishing this metric for cash will help you immensely; not only in becoming more operationally efficient, but also driving positive cash flow, and cash on hand is how you grow… or weather uncertainty in the wake of a pandemic.
Want to know how to map this out? Schedule a 30-minute coaching call with me and we’ll capture your Cash Conversion Cycle together. (A no-cash-required offer.)
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