Lessons from a recession veteran: Cash is king and don’t you forget it!
It is possible, even desirable, to start up in tough times, but your chances of success increase if you are prepared to listen to those who’ve been there before and survived. For John Sollars, founder of Stinkyink.com, this is his second recession and he’s on his third business; the first two failed but the third is thriving. In a series of articles John highlights the lessons he has learnt. The first covers management of cash flow which is critical to keeping tabs on the health of a business.What is cash?
Cash in its purest form has a picture of the Queen’s head on it and is the lifeblood of your business. However in these days of electronic commerce you will rarely see notes or coins and most transactions will either be by cheque, payment card, or even better, electronic bank transfer, known as BACS. These all combine to provide receipts into your bank account and hopefully give you a positive cash flow. Positive cash flow means that you have more in receipts than you have to pay out to your staff (wages), suppliers (stock) and overheads (rent, rates, energy and phone costs etc.).
What is the difference between cash and profit?
But it is important not to confuse cash with profit. Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or some other trading period, such as monthly or quarterly. You may be able to forecast a good profit for the year, yet still face times when you are strapped for cash. And if you have no cash to pay your bills, you can face bankruptcy, even if you are showing a significant profit.
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