Cash Flow is More Important than Cash
INTERVIEW ON THE PRICE OF BUSINESS SHOW, MEDIA PARTNER OF THIS SITE.
Recently Kevin Price, Host of the nationally syndicated Price of Business Show, interviewed Ruth King.
Your first thought was probably, “She’s crazy!”Think about it. Cash is critical to pay for rent, utilities, and other business expenses. But, how do you get cash? Through cash flow!
Imagine a tank of water. And, instead of water in the tank, there is cash in the tank. If you never added to it, then the tank would drain as you paid for your rent, payroll, supplies, utilities and more. At some point there would not be any cash left in the tank and you would be out of business.
Cashflow is necessary to get cash. You have to have cash coming in so that you can pay for what you want and need. Payments are cash out.
How do you get cash inputs? Mostly through collections on sales. Notice I didn’t say sales. If you send out an invoice for work you performed, you have an accounts receivable, not cash. You cannot use an accounts receivable to pay the rent!
When the customer pays, that is a collection and you can add that cash to the tank. When you have an accounts receivable you are the bank for the customer. Retailers, restaurants, and even doctor’s offices have decided that they don’t want to be banks. They get their money immediately upon services rendered. (Health care companies get their deductible immediately and some even request full payment. You are responsible for getting it back from the insurance company).
Other cash inputs are from borrowing on lines of credit or personal savings, interest on investments, or, infrequently, a sale of an asset.
Beware of the slowly leaking tank! This is where you get cash inputs so that you can pay your bills. At the end of the month you have a little less cash in the tank than you had at the beginning of the month. The next month has the same scenario. At the end of this month, even with cash inputs, there is less water at the end of the month.
Don’t be lulled into a false sense of security with cash inputs. You have to have more inputs than outgoes so that the level of cash in the tank remains constant or gets higher, i.e. you have to have positive cash flow.Cash is critical. Without positive cashflow, you will eventually have no cash.
LISTEN TO THE INTERVIEW IN ITS ENTIRETY HERE:
The Price of Business is one of the longest running shows of its kind in the country and is in markets coast to coast. The Host, Kevin Price, is a multi-award winning author, broadcast journalist, and syndicated columnist. Learn more about the show and its digital partners at www.PriceofBusiness.com (scroll down to the bottom of the page).
