Cash Counts

“How are you going to pay for this?” I asked? My client responded, “I still have checks” which meant he didn’t have any cash. He had the ability to write a check but no cash to back it up. I can’t stress enough how important cash is in any business operation. The reality is, cash counts! It makes a huge difference in the ability to continue operating from day to day. Without cash, employees get nervous, vendors hound you, and owning a business becomes miserable.

Why do most small business owners lack cash? Where is the money if I’m selling products or service? Why isn’t there more cash in the bank?

These are all valid questions. It comes down to managing the cash in the company. Just like employees, cash has its problems too. Sometimes it calls in sick. Other times, it shows up late (actually quite often), and for some reason cash isn’t as productive, it doesn’t do as much work as you would like it to do. To manage cash, manage it no differently than you would deal with your staff.

The key is that you need to make sure you are earning enough money in the company. So the primary element to making sure you have cash is make sure you are earning a profit by reviewing your accrual based financial statements. This is important to understand, a good accrual based report will make sure all bills and invoices are complete and up to date. Now you have a position of knowledge to work from. If you are making a profit, then it comes down to a matter of reviewing why you lack cash.

Sometimes the cash calls in sick. This means that one of your customers can’t or will not pay you. It is important to communicate with them and find out why. In one situation, I found out that the customer wouldn’t pay the invoice because she never received the document. It turns out the invoice was never mailed; it was still sitting in the bookkeeper’s draw because she was called away on that day and didn’t get back to mailing the invoices. You would be surprised at some of the reasons why customers will not pay you for your services. Here a good internal accounting control system would have caught this before it became a problem.

Sometimes cash shows up late. This is typical because customers pay late or have payment cycles that do not match your cash needs cycle. Get to understand your customers, create alternative approaches to deal with their cash issues. Options include allowing them to pay with credit cards, using a third party to lend money, even using factoring to get money to you. Just like dealing with employees, you have to be firm in holding the line on getting paid (showing up on time); have more than just one option for them to pay their invoices.

Once the cash is in the account, look at your bills and don’t just start paying them based on dates due or who is your best vendor. You need to be cognitive of what is coming up in the future, if you know you have a payroll and taxes due in a few days, reserve enough funds to cover that obligation. Use the balance to pay your vendors. Call your vendors and explain to them that folks have not paid you yet so it is difficult to pay them. If you lack enough funds, make token payments to your vendors, this tells them that you haven’t ignored them or vacated your responsibility. The key here is communication.

Be careful when buying big ticket asset items. Make sure these are funded from an appropriate source, if a long term asset(s); use long term money such as loans or capital funds to purchase the asset(s). Use your profitability to pay down the debt as you have excess money.

Managing cash is no different than managing employees. Vigilance in your duty eliminates that ‘I don’t know how to pay for this’ response. Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

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