Where is the Cash?

Occasionally when I’ve first started with a new client I find myself wondering “where is the cash?” This is especially true when they are fairly profitable.

It’s There, But Where?

Unless there is theft, the cash is there somewhere. Unfortunately I’ve also seen situations involving theft, but that’s another topic. So, where is the cash? Typically it’s tied up in various assets, and that can be an opportunity or a problem. So, here are some of the places where cash is often hiding.

Accounts Receivable

Proper management of accounts receivable is one of the easiest and quickest ways to provide cash. See 3 Low Cost Sources of Cash – Part 2 for some detailed discussion. Suffice it to say that the answer to the question “where is the cash?” is frequently in delinquent customer accounts. This is why it is important to have good practices for managing customer relationships, such as:

  • Be cautious in granting credit and in establishing limits
  • Make sure customers know your terms
  • As soon as a customer becomes past due, call them
  • Don’t be afraid to ask customers when you can expect payment
  • If a customer becomes much too past due, you may need to not sell to them until they reduce what they owe you sufficiently
  • If a customer is consistently past due, shows little intention of changing, and is making it difficult to collect from them, it may be time to terminate them as a customer

Inventory

Like accounts receivable, the importance of good inventory management is an issue I mention very frequently. The reason is simple, inventory is an area where large amounts can be tied up and this tends to sneak up on a company. See 3 Low Cost Sources of Cash – Part 1 for more detail on this. Here is the critical thing to keep in mind: Only keep sufficient inventory to meet your needs with just a little in reserve. Things such as projected sales (by item) and ordering time will impact this level. But if having a two month supply of inventory is sufficient, then think how much cash is tied up if you have an eight month supply of inventory on hand.

Fixed Assets

I hate to see it when a company buys assets it really doesn’t need or that are much more expensive than necessary. For example, why by new furniture when used will do? The same goes for production equipment. A used lathe or milling machine may easily do the job and provide years of dependable service for a fraction of the cost of new ones. See Think Used for more details on buying used.

The Answer to the Question

So, if your company faces the question “where is the cash?” it may be you only need to look as far as your balance sheet. Chances are there is a lot hidden there.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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