For all the entrepreneurs struggling with cash management questions, here are ten
tried and tested rules.
Rule 1: Never
run out of cash. Inc. magazine columnist and author of this list Philip
Campbell says, “Running out of cash is the definition of failure in business.”
Rule 2: Cash is
king. The Roman poet Ovid wrote, “How little you know about the age you
live in if you think that honey is sweeter than cash in hand.”
Rule 3: Know
the cash balance right now. As sixteenth-century British philosopher Sir
Francis Bacon advised, “Knowledge is
power.”
Rule 4: Do
today’s work today. Stephen King, president of financial accounting firm
Virtual Growth, points out, “There are often ways for companies to improve
their cash position simply by making certain that their billing, collections,
and payables systems are operating as efficiently as possible.”
Rule 5: Either
you do the work or have someone else do it. Donna McGovern, accountant and
owner of Ideal Business Solutions, reports that Commercial Credit hired her as
its part-time Chief Financial Officer to make sure they had not “miscalculated
their cash needs or owed a client money but had their funds tied up in the
wrong kind of investments.”
Rule 6: Don’t
manage from the bank balance. Once again from Sir Francis Bacon: “Money is
a good servant but a bad master.”
Rule 7: Know
what you expect the cash balance to be six months from now. Donna McGovern
advises, “Once you understand your cash position, you can often follow a course
similar to the one families follow when building up an emergency nest egg: Put
small amounts of extra cash in a money-market account” or another investment
vehicle where it can earn interest and still be accessible.
Rule 8: Cash
flow problems don’t “just happen.” Did anyone believe former Enron Chairman
and CEO Kenneth Lay when he said, “I mean, the company had a lot of strong cash
flows when it went into bankruptcy”?
Rule 9: You absolutely, positively must have cash flow projections. Not
having them is like driving a car with your eyes closed.
Rule 10: Eliminate
your cash flow worries so you are free to do what you do best: Take care of
customers and make more money. As stock market analyst Robert Prechter, Jr.
says, “There’s nothing wrong with cash—It gives you time to think.”
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