Cash is King, or is it?

An Old Saying….

The saying ‘Sales are vanity, profit is sanity, cash is king’, is all about business priorities: you may be selling a lot, at a profit, but if you run out of cash, then your business may be in trouble.

Keeping a watchful eye on your bank balance is extremely important, regardless of whether it’s your business or personal account (if you are self employed, one needs to feed the other).

‘What’ without a ‘Why’

But here’s the problem: whilst cash in the bank can be great news when you happen to check your statement, it tells you nothing about how it has come about, in other words, what events have lead to this situation, and what could happen in the future. Let me illustrate: say you have £5,000 in the bank account – is this amount the result of some recent profitable sales, or could it be because you have successfully collected a debt that has been outstanding for nine months? So you see, the ‘King’ tells you ‘what’ without a ‘why’.

You need more

That’s why you need two further pieces of information to effectively run your business:

  • Meaningful, recent, accounts which show you what you are selling, and what profit you are making after all your costs
  • A monthly sales and cash flow forecast, rolling forward from your current cash position, so that you can see what’s in store for your business

So cash is rightly ‘king’ but you need two other members of the royal family to effectively run your business!

If you would like to get back in control with some robust financial planning, and actually start enjoying being in business, call me on 07774 548822 or email ralph@drs-business-solutions.co.uk .

Leave a Reply

Your email address will not be published.