Cash is Queen
When it comes to business ownership, it’s absolutely critical to have access to substantial amounts of cash. In all honesty, cash is the lifeblood of a business. This might sound obvious, but do we really understand why? To put it simply, it’s because, despite how often you hear that you should leverage credit to operate a business, you’ll ultimately need cash, not debt, to establish, expand, and grow your business.
Let’s jump right and discuss this in more detail below!
3 Key Reasons Why Cash is Queen
Most of us realize that it’s important to have a lot of cash when we own and operate a business. But do we know exactly why? Here are three primary reasons:
Having cash on hand allows for purchasing flexibility. In other words, having cash gives you more power and control. It enables you to make better choices so you can minimize your company’s spending and save money. For example, when you have cash available, you can opt to pay for annual subscriptions, which are always less expensive than monthly ones. Similarly, this will give you the ability to take advantage of early bird specials and so on. You won’t be stuck with limited options because you don’t have enough cash to pay for the better choice. Ultimately, you can save money without increasing debt.
Having cash makes it easier to borrow capital and leverage debt. How? Cash is an asset that shows lenders that you have equity (ownership) in the business (provided, of course, that your current liabilities aren’t greater than your assets). This makes it much easier to negotiate favorable terms when you go to take out a loan or accept funds from an investor – which can become necessary when you want to expand your company. Lenders and investors typically look for someone who has equity in their business and isn’t laden with debt.
Having cash enables a business to meet payroll and pay its taxes. This one’s a biggie! After all, your employees naturally expect to get paid consistently, and it’s an absolute must that you meet your tax obligations, or else your company risks penalties, fines, and more. And remember, your company requires cash for these business expenses – using credit in these instances is a big no-no.
Finally, note that even if your business shows profit throughout the year, if there’s no cash sitting in your bank account, this will negatively impact the value of the equity of your business. This is problematic because you’ll be behind the eight-ball in various scenarios, including if/when you ever need to borrow capital.
A Final Word from Tuesday P. Brooks Owner of AJOY
But let’s not get all caught up in the doom and gloom! Rather, let’s just recognize the importance of having plenty of cash when you’re building and growing a business rather than relying on borrowed money. A steady influx of cash will help your company meet all its business expenses, borrow capital as needed so it can expand, save money, and enjoy purchasing flexibility. There is such a thing as good debt, but cash is Queen. Your business will hopefully flourish and prosper beyond your wildest dreams! Wishing you all the best and lots of luck!
