Blog About Us Store My Library Get Our Newsletter Login

Only Manage Your Cash if You Want Your Business to Survive

manage cash systems Jun 26, 2020

I love seeing the wide variety of businesses around the world. It’s one of the reasons that I enjoy working with small to medium sized businesses – there is so much variety and so many ways that people have figured out how to make money. I get jealous that I don’t get to work in many of the businesses that I learn about. They are so innovative, and it seems like it would be so fun to be part of the team!

These companies generally have:

  • Innovative products and services
  • Great demand generation marketing
  • A good sales team to grow revenue
  • Operational excellence that is generally close to the skill of the founder

After that the business usually has weak spots. They generally lack systems and operations throughout the company that will allow them to scale. Especially when it comes to accounting, finance, and cash management.

Between my experience and the conversations that I’ve had with accountants and business consultants, I’m convinced that 90% or more of the small and medium sized businesses who have financial difficulties don’t have good financial management. This includes basic bookkeeping. This is close to the Small Business Administration (SBA) study that indicates 82% of all business failures in the United States are a direct result of cash flow problems (see SCORE.)

Let’s Start with What Cash Management Is and Is Not

When I start to talk to my new clients about cash management, they always want to talk about bookkeeping, financial reports, tax returns, the number of miles they earned on the company airline credit card, or half a dozen other topics that revolve around their company’s finances and their financial history.

I’ll finally have to stop them and explain that cash management is not financial history. It is taking responsibility for the company’s future ability to pay bills, reinvest, and grow. Specifically:

  • Controlling when and where the cash goes out of the business
  • Managing the process of when cash comes into the business
  • Making conscious decisions of where the cash goes when it is inside the business

Cash management is not:

  • A single tactic for getting your money faster or paying it slower.
  • Forecasting your sales and creating an expense budget and to predict your profits
  • Accurate bookkeeping that tells you what happened in the past

Please, please, please… if you remember just one thing from this topic remember this:

“Using historic financials to run your business is like trying to drive your car by looking in your rear-view mirror.”

Managing your cash is active, data-driven, and a routine part of any well managed company that wants to grow. You need a combination of:

  • Reporting from the past
  • Strategies, tactics, and tools that manage the future of your business
  • Whatever it takes to put you in control of your cash.

Every Business Needs to Manage Cash

Every business needs to manage their cash. Why? Businesses are always changing- they are growing or shrinking and have new people, new products, and new ideas that all put pressure on where the cash is used.

Show me a business that never changes and that has the same sales, margins, and costs every month for a year or more and I’ll show you a business that can put their cash management on auto-pilot. Just like any good captain, the business owner will need to monitor that the auto-pilot is working and take the controls if there is an emergency i.e. the business changes.

What? You don’t know any businesses that can even go two months without change?

Right. That’s my point.

Since monthly sales, margins, and costs vary you need to manage your cash just like you manage every important aspect of your business:

  • Sales
  • Product mix
  • Purchasing
  • Human resources
  • Marketing
  • Every other key component that makes your businesses great

There are two particularly critical times when cash management is really important: when a business is business is shrinking or when a business is growing. Yes, that means almost every business!

No alt text provided for this image

Shrinking businesses: If your business is shrinking you have less profit margins to pay your bills and to pay yourself.

The result?

Cash shortfalls due to a decreased amount of cash coming in.

Seems obvious, and it is. What isn’t obvious to most businesses owners is how to:

  • Cut expenses that are not critical to the core businesses
  • Accelerate being paid to bring in cash faster
  • Reduce or slow the cash going out for critical expenses
  • Maximize the margin on what you are selling
  • Engage employees in all of this

Growing business: If your businesses is growing, you have more profit margin to pay your bills and to pay yourself.

Again, this seems obvious.

No alt text provided for this imageWhat many business owners don’t plan for is the delays of the cash coming in to pay those bigger bills.

A staggering number of businesses get themselves into serious trouble because they grow too fast and don’t have the resources in place, including access to enough cash or credit, to handle the growth.

Don’t Just Survive - Use Cash Management as a Tool to Thrive!

When cash management is done properly it does more than free up cash for the company to pay the bills and survive revenue growth or declines. It helps the company thrive by:

  • Identifying key problems areas
  • Implementing disciplined processes to create a permanent fix
  • Moving from problems to maximizing profitability

To help show you how focusing on cash can help you maximize your business profits, let’s take a trip to a magic fantasy land called Cashlandia. In Cashlandia there are some interesting rules:

  • Total sales and costs of goods never change from month to month.
  • Every business has the exact same customers, each buying the exact same goods and services for the exact same price.
  • Every business pays the exact same total amount to their vendors and employees.
  • Every month has the same revenue, cost of materials, gross margin, and total expenses as the month before.

Lastly, there are two important rules regarding variables:

  • You can make changes to how you manage your cash. 
  • You can change where your expenses go, just not the total amount.

One last thing to know on for our trip to Cashlandia: Every business there has a personalized objective and their goal is to maximize that objective. In Cashlandia, they know that if they can manage their cash to improve their profitability and/or reduce the cash investment in their business, they can use that cash to increase the amount of money they have for their key business objective.

Here are two examples of maximizing cash management from our fantasy world:

1.      One company, a meat packing plant called Cashcows has the key business objective is to maximize donations to the animal right group Bovine Charities. Cashcows decided to pay all their expenses using a cash-back credit card and to pay the balance every month, so they don’t pay any interest. When they did that, they started to donate the 2% cash-back bonus to Bovine Charities, fulfilling their main objective.

2.      Another company, a toilet manufacturer called Johnnie Cash LLC, worked with vendors to move 25% of its inventory to a consignment system. Now they don’t pay for the inventory until it is used or sold. The cash they used to invested in that inventory was reinvested to increase productivity, so they reduced the cost of producing their best seller, the low-flow “Don’t Flush Your Cash” urinal. They increased margins so they needed to increase expenses. Johnnie Cash’s key objective is happy employees, so now all the employees get a trip to Cashlandia most famous amusement park – Silver & Gold World.

What can we learn from the companies in Cashlandia? Cash management doesn’t just mean paying the bills to survive. It also means moving your cash to where it is invested in what matters most to your business and using your cash to maximize profits.

So, Is Your Business Growing or Shrinking?

What’s your most important cash management strategy, tactic, or tool? I’d love to hear any ideas you have.

Is there a topic you’d like to learn about? Contact me at [email protected] to introduce yourself, share ideas, or ask me questions about managing your business’s cash.

David Safeer helps business owners create breakthroughs that overcome their biggest obstacles through cash and operations management. David founded The Cash Management Project in November 2018, to help businesses maximize their cash resources. David writes, teaches, and works with diverse companies around the world.

Thinking globally, one business at a time.


50% Complete

Two Step

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.