Jack Falvey's Investor Education Briefs: A cash-only business can have multiple benefits
By JACK FALVEY
Cash on the counter is not as common as it once was, but the barber shop, the dry cleaners and fast food still make change. Having cash to work with is a big help in business. It is also a bit of a challenge because cash creates the illusion of success. The cash coming in mostly belongs to others: the rent, your payroll (if any), suppliers and, most important of all, to the IRS.
There can be only one accounting of cash coming in. The cash register itself was invented to ensure that the cash went to the business and not to others. Ringing up a sale came from the bell that sounded each time the cash drawer was opened. Keeping a close eye on cash is prudent to this day.
Having low or no accounts receivable is a great benefit. Knowing where you stand financially at the end of each business day is critical. Liquidity allows for flexibility.
Running your personal finances on as close to a cash basis as possible will usually result in a better night’s sleep. Debt has its function and can be an operational necessity, but keeping things within reason and having cash on hand and good cash-flow projections is your objective.
Staying above water and not going in over your head have become accepted expressions related directly to your cash position. Credit is instantly available to just about everybody. Plastic was reported to be the opportunity of the ’70s. As it turned out, it became the temptation of the ’90s and is with us to this day.
Generating cash short term to run a business or long term to run your life is the financial challenge common to us all. Learning the value of cash is a lesson to be mastered. Those who do somehow seem to do better than those who don’t.
Cash on hand is how each day starts and ends. Be sure you know the score. It is not an easy game to master, but it is an easy game to understand. Some arithmetic required.
Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org