Business experts often invoke the dictum “cash is king,” but cash takes a back seat when a company is chasing revenue. Firms with strong cash positions are more resilient and can seize new opportunities, so cash management is crucial. Consultant Peter Kingma drives home this point using the narrative of the fictional Owens Inc. Sometimes his attempts at humor seem a bit forced, and extolling the advantages of using outside consultants can appear self-serving. Nonetheless, his approach is focused and comprehensive, and entrepreneurs will find this a helpful financial reference.
A business should consider its cash flow and not just pursue revenue.
If a company is to sustain its growth, it should consider best cash management practices in addition to revenue generation. Consider, for instance, the imaginary Owens Inc., a manufacturer of electrical equipment that learned that its sales terms were too favorable. It also found that its internal processes were complicated enough that they influenced its invoicing practices and the effectiveness of its collections process.
The company had grown by taking risks and ramping up sales, but it didn’t have a good grasp on its inventory management. Owens had initiated capital projects, but it was getting harder to forecast the company’s cash flow situation and fund these initiatives. Moreover, some customers were taking their time with payments and not adhering to sales terms, to the extent that the company’s Chief Financial Officer noted that Owens was effectively functioning as a bank to its customers. Although Owens’s Chief Executive Officer had at one point declared that “cash is king,” he had lost sight of that mantra as the company grew.
Some best practices a company could initiate to ...
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