Wednesday, June 19, 2024

Cash is lifeblood

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Kim Radok, Credit Matters, Naracoorte Community News

When we talk about cash in business from the perspective of our introduction, essentially, we are talking about the funds in the business’s bank account(s). We are not talking about cash as a payment methodology, although this is also an essential factor for the potential survival of a business.

Cash in your business’s bank account(s) is the lifeblood of the business and a resource factor all too often minimised by the potential access of credit. The issue is that cash is the means of maintaining control over your business. Access to credit, whilst an attractive thought at first, when utilised, is also the start of potentially losing control of your business.

There may be an argument, that access or finance drawn down for the right reason, i.e., the purchase of an asset to enhance the business’s earning potential, is an essential component in operating a successful business. On that point, I can agree.

The problem is however, that using credit or finance soon becomes addictive, particularly when it is considered to be at a cheap rate. As businesspeople found however at the start of Covid, and the same goes today as interest rates are on the rise, if you have no income, you cannot repay the debt. The most striking fact noticed at the start of Covid was the number of businesses which declared some form of insolvency within three (3) months of the start of Covid. The same outcome of insolvency can be expected in the future as funds become scarce.

Regarding the extending B2B (Business to Business) or B2C (Business to Consumer) credit, another source of cash for your business, the story of uncollectable accounts has grown considerably since the start of Covid. As we have come out of the Covid period, many businesses are now finding they are unable to collect unpaid invoices because their customers are becoming insolvent or are just not paying.

Irrespective of whether your business accepts or extends credit, the fact of business life is that now you are seeing how important it is to understand the role cash plays in the long-term survival of your business.

Naracoorte Community News 9 August 2023

This article appeared in the Naracoorte Community News.

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