“Cash is king” is one of the oldest sayings in business. But it’s worth reminding ourselves why that is in this article by Head of Sales, Andrew Johnston.
Creating a cash culture in your business isn’t always easy. So here’s one analogy to use. It doesn’t matter how flashy, fast or expensive your car is – unless there’s fuel in the tank, it won’t get you anywhere.
In a growing business, you might have some great products, own a warehouse and have big contracts with blue-chip customers – that’s the car. But if your cashflow, your fuel, dries up, you can still go bust.
Hence the old saying, “revenue is vanity, profit is sanity, but cash is king.” Plenty of growing companies don’t make a profit. But so long as they are able to generate cash to pay the bills, meet the payroll and invest in growth, they do just fine.
At ABN AMRO Commercial Finance, we help businesses manage their cashflow – and turn assets into cash to support growth. But that also means we see other ways that a cash culture can boost your business.
1. Get a better deal.
Every business values cash – including your suppliers. They will often offer much better terms or prices if you can pay earlier. In industries where supply is limited, being able to offer cash up front could also get you to the head of the queue for product, too. That means you can build better relationships – and more business – with your own customers.
2. Invest in growth.
Whether it’s new property, plant, stocks or people, growing your business can mean investment. Turning existing assets – from property to receivables – into cash allows you to expand more quickly and a time that is right for you. And embedding a cash culture means new fixed assets and new customer invoices can also help fund your next stage of growth.
3. Manage seasonality.
Lots of businesses have seasonal cycles. This can mean a period of intense activity, with investment in stock and labour with little income, followed a while later by an influx of cash sales. Knowing you have the cash to optimise the build-up phase and keep going before the cash from sales arrives is essential.
4. Absorb shocks.
The world is getting more unpredictable. Regardless of how you feel about Brexit – or the world financial system, or climate events – there’s a higher chance than ever that your business will face an external shock or an economic headwinds. Having the cash to deal with the unexpected not only helps you sleep at night, it also means that when less-prepared businesses falter, you don’t have to break stride – and can pick up their slack. And that doesn’t mean just having a healthy bank balance. Solutions such as Bad Debt Protection can secure your cashflows even when the worst happens to your customers.
5. Boost your credit rating.
When businesses overleverage to accomplish any of the above, their credit rating may drop. Ratings agencies also look at balance sheet ratios, and your ability to generate cash. Using the kinds of services we offer, you can plan both short-term and long-term cash needs in a controlled way, optimising your balance sheet as far as the ratings agencies are concerned. That makes you more attractive to suppliers, too.
The bottom line on the bottom line? The more efficiently and quickly you can convert assets into cash, the less you have to worry about keeping the business running as usual. No entrepreneur wants to worry about day-to-day cash issues and making the payroll.
Create an efficient cashflow engine at the heart of your business, and you can concentrate on growth and the future. Finance is the fuel of your business. We want to help you focus on tuning up that engine – not wondering where the next petrol station is.