WHY CASH IS KING?

The most usual reason behind the failure of any business is lack of cash instead of lack of profit, which is the most common miss-concept among the people.So many failed businesses, when analysed prove to be highly profitable but running out of cash acts as the culprit behind their failure.The points which make the idea of maintaining sufficient cash balance reasonable are:

*Profitability and Liquidity- We all know that where profitability is the amount gained by a business, liquidity is  characterized by the capability of a business to meet its expenses and debts whenever they fall due.Liquidity plays a  substantive role in the financial stabilization of a business.If a business fails to manage liquidity, it will not be able to  pay its debt holders and consequently it will be bankrupted.

*Cash performs as Oxygen- If we consider an analogy of food and Oxygen then, if profit is like food, cash resembles  with Oxygen.One can sustain his life without food for several days but without Oxygen, not even few minutes.So, in  the short run, a business can outlive without profit but without cash, it just can not.

*When it comes to becoming cashless- Generally, many businesses do not put emphasis on their liquidity.These  businesses are not concerned about the realism in the prediction of their cash income and expenses.They just keep  on misjudging their income and expenses up to extremums.Also, most of the businesses do not regularly and utterly  forecast their cash flows and  anticipate problems, which are to be encountered.And, when they become cashless, it  becomes too late to overcome.

*Goals to be set up- The major challenge for running a successful business is to meet the ampleness of cash flows and  loftiness of profits.But its really hard to hit the nail on the head, so one should focus at maintaining cash flow in  short term and generating profit in medium and long terms.

*Appropriate Cash Balance- A business should unveil an optimum cash balance which must be maintained  throughout in order to meet all the short term expenses and to invest the cash in more profitable plans.

Click here for government certification in Accounting, Banking & Finance