Partner Article

Watch where cash is hiding

My first business mentor taught me the wise phrase “Turnover is vanity, profit is sanity but cash is power”. He then went on to tell me to be constantly on the watch for “where cash is hiding”.

That was many years ago but it’s still a sound lesson today for any business.

Another lesson taught me that cash can be like water in a lake just lying there idle such as unsold stock or unused equipment. What you want is cash flowing through your business like a river in torrent.

Unless you are “looking around the lake” that idle cash will eat up your profits and resources.

You need to get Cash Power behind you!

An example: A small hotel in the Home Counties asked me to help them improve profitability as they were barely breaking even. I started off preparing an action plan, including a financial review and stock take and found that not only were they sitting on £1000’s of unsold wine (because the owner liked his wine!) but also he had nearly £100,000 worth of bedroom furniture stored in an expensive warehouse (just in case he couldn’t get any replacements). Oh and there was all the unused catering equipment that could have been sold and cash raised!

What do you need to know?

The two areas to review are Balance Sheet where there are stocks of cash and Business Operations where cash flows.

Where do you need to be looking?

Coming up are 6 actions for increasing cash power. My first two carry a caution warning. They are to decrease assets and/or increase liability or capital. Don’t put your business at risk.

However you can apply yourself to the other four.

You can improve productivity, getting more for your time and money and exercise good credit and cash management.

1. Decrease assets.

2. Increase liabilities or capital.

3. Increase revenues.

4. Decrease cash expenses.

5. Improve productivity.

6. Optimise timing of receipts & disbursements.

Your 3 point action plan.

1. Find where cash is hiding –use my list.

2. Determine what you will do to increase cash power and communicate it to all your people.

3. Do it and watch cash closely.

Have you any top tips on how to watch cash and get cash power? Are there any other areas you know where it can hide?

This was posted in Bdaily's Members' News section by Malcolm Gallagher .