Why CASH is important in companies, CASH is King.
The phrase “cash is king” refers to the importance of cash-flow in business management.
There are many factors that might contribute to a company’s failure, but one that never goes away and affects every project is a lack of funds to pay for the many bills.
As a result, generating sufficient revenue is a requirement of any business venture.
On the long run, we focus on profit, but on the short run, cash is king.
We may be able to sustain a loss over a short period of time, perhaps even a whole year of losses. What we really need is something effective that will allow us to face our tasks without feeling tense.
Having no cash tensions allows us to make better management decisions.
When there are no cash issues, it is easier to make decisions on the account of results.
The financial year net income is the objective, but to achieve it it is necessary to overcome the difficulties that appear along the way.
Business management theory tells us that the ideal is to ensure that the invoices for our sales occur before the payments for purchases.
That is, that we pay our suppliers when we have already get paid from our customers.
But in the real world that happens rarely (hypermarkets, online commerce…).
When it is not possible to advance the collections to the payments, it is necessary to have a surplus of treasury to be able to attend to this gap.
If we do not have this remainder, we may be in breach of our payment obligations.
And the market (suppliers) does not easily forgive such non-compliance.
If we have cash available for the normal operating cycle of the business, we can focus on the margin.
If we’re short on cash, we’ll probably have to accept margin reductions in order to generate it.
And those margin reductions will sometimes lead to loss-making trades.
We can bear trading losses for a short time, but not for a long time.
If, in addition, this lack of cash coincides with a slowdown in our market (sector or economy), it will be accompanied by a reduction in sales that will further reduce our generation of cash.
The way to overcome this transitory difficulty will be through a reduction of the margin in exchange for a faster collection of payments.
Therefore, in the short term we can accept a loss.
The problem appears when it becomes chronic and we cannot generate cash fast enough for the demands of our company.
It is necessary to establish a business management control that detects variations in the generation of cash, in this way the appropriate decisions can be made quickly.
It is necessary to establish a business management control that is capable of forecasting cash-flows in order to anticipate the situation and act accordingly.
And those control systems go through the study of cash-flows, because as we have seen “cash is king”.
More information about Controlling Excel Tools
- Best Finance Excel Templates for Controlling and Management
- Financial Plan M3 Free Excel Template
- Not performing a budget or budgetary control is equal to death according to FERRAN ADRIA
- Excel Template Matrix for Decisions
- Stocks Planning Procurement Simulator Free Excel Download
- Balanced Scorecard M1 Excel Template
- Bugs Tickets Resolutions Control Excel Template
- Employees Best Practices Improvements Requests M2 Free Excel Template
- Inventory Control and Dashboard Excel Template
- Actual Vs Budget Excel Templates
- How to Calculate the Unit Cost of a Product
- Financial Business Excel Templates
- Does a company need to automate or optimize administrative tasks?
- Pipeline CRM Excel spreadsheet
- Benefits of Using an Excel Dashboard Speedometer Template
- Excel Template Cash Flow Forecast M15
- Projects Costs Calculation and Control M3 Excel Template
- Human Resources Excel Templates
- Cash Flow Control Excel Spreadsheet
- Tracking Shipments Excel Template
- Excel Template Accounts Receivable Control
- Human Resources HR Budget Excel Template
More Videos about Management Accounting
Controlling Consultant
Controller ODOO ERP
Email: dani@cashtrainers.com