PKF International
PKF Poutsma Lemon Limited
PKF Poutsma Lemon Ltd, Keri Keri, New Zealand
Accountants and business advisers

Cash is King

If there was a book of business poetry, it would be full of poems to CASH, for the good and for the bad.

Cash is the real life and death issue for business. There are lots of important things to worry about in business – people, products, service – and they are all important because they impact on cash. 

Businesses with cash will live. Businesses without cash will die.

Profit is important and it is the reason businesses exist, but it is not more important than cash. If you have the cash, you can run an unprofitable company for as long as the cash holds out. For example, there are a number of dot-com companies that have never earned a profit. They are in business because they have cash in the bank, so someone or something is financing them.

Enron was one of the most spectacular business failures on record. Arrogance, greed and corruption are among the many reasons given and it grabbed the headlines. The reason for the actual failure though, was that they ran out of cash. As long as they had cash (and could continue to get more) the doors stayed open and the lights stayed on. Moral and ethical failings may have led to it, but the collapse did not come until the day the cash was gone.

The real power of cash is that it creates opportunities. With cash you can move more quickly than your competition, you can exploit opportunities before anyone else and you can create new opportunities by putting the cash to work.

Cash can literally be money sitting in a bank account or it can be securing a line of credit that the business does need or doesn't need now but may need one day. Credit applications take time, whether a Bank has sufficient security or not. 

The way cash flows and how much is needed to have on hand is different for every business and it also depends on what the goals and aspirations of the business owners are.

But the universal truth is that cash needs to be well managed.

Isn't that one of the reasons parents give their children pocket money? So they can start to learn how to manage their cash. 

For business, managing it means understanding it, measuring it and being disciplined to financial planning.

That's why Cashflow Forecasting is important. It helps to identify potential cash shortfalls such as seasonal demands, assist with finance, smooth payments, identify the highs and lows, plan for the future and dare I say it… Tax planning.

Don't get me wrong, Financial Forecasting is important and it should be done in conjunction with the Cashflow Forecast. 

Looking at the different results on a month to month basis between a cashflow forecast and a profit and loss forecast, has certainly made a few business owners rethink some of their business decisions and where the cash is going to come from.

You should know how much cash your business has on hand every day. You should know how much cash you will have for the next week. It's a good idea to know how much you will have for the next month and a plan for how much you will have for the next year.

Cash is safety. Cash is opportunity. Cash is power. Cash is king.

PKF Poutsma Lemon Limited (Kerikeri Office)

Alison Lemon



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