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Show Me the Money!

(August 2007) posted on Tue Aug 07, 2007

Roberts explains how to establish and manage cash flow in order to keep your business successful, profitable, and growing.

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Well, it turns out that he really did have a well-run and healthy business, and he scored highly in every category but one. The accountant told him that he had made all the right decisions as far as employee management, his plant and machinery were well within the limits of profitability, his marketing budget was cost effective, and his customer base was one that most of us would sell our grandmothers to have. Supplies inventory was a little high, but this was to be expected because he specialized in quick turnaround and needed to keep a good supply of raw materials on hand. It was something to keep an eye on but certainly nothing to worry about. My friend absorbed all of this information, waiting for the inevitable but.

It turns out that my friend was quite right in lying awake and worrying because he had overlooked one thing. The accountant told him that it was a similar problem with most small businesses like his.


Cash flow

Like many of us who run our own businesses, my friend had, over the years, developed the knack for juggling payments against payables and relying on his bank to bail him out when he dropped the ball with a revolving line of credit. This had become second nature to him and so ingrained that it never occurred to him that there might be a better way. The accountant told him that his business could only be considered truly successful when he had enough money on hand to pay every bill on time, without having to struggle with who to put off for the month and who absolutely had to be paid. The accountant’s recommendation was to begin depositing a portion of his profits every month into an account that would allow the profits to grow. He told him to freeze any new spending until there was enough money on hand to free himself and his business from the tyranny of stealing from Peter to pay Paul. For our businesses to be successful, we have to embrace the truth that cash is king.


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