There is a well-worn adage in business that turnover is vanity, profit is sanity, but cash is king. However to use an analogy a king is not what he used to be – how many absolute monarchs are left in the world today?
Certainly it is cash that will make or break a business but unless it is being managed as part of an overall business strategy cash management is just not enough. After all using your reserves and selling assets may keep you trading but that is hardly a sound way of doing business. Another way to look at this is to ask if cash is king, can we get by without credit cards? In the vast majority of cases the answer will surely be no.
A sustainable long-term cash flow for your business can only happen if you also have in place strategies for:
- Profit management which includes looking after
- Margins
- Cost control
- Asset management – using business resources efficiently
- Debt management – in many cases you will need money to make money
- Credit control – or how your profits translate into cash
Volumes can be, and have been, written about how to manage your business and dig deeper into the concepts listed above (as well as others). There is no one answer – what works for one person in their business could be very different from another business, or even someone else in the same business.
Another view is that cash flow is merely a by-product of other strategies (e.g. profitability and credit control) and a cash management strategy is actually making efficient of surplus cash in the business.
So is Cash king? Probably, but only as part of a constitutional democracy of other business strategies and methodologies.
