There is simply no substitute for cash from a financial safety standpoint, both in business and personally. Every company should strive to have an adequate cash balance on hand at all times in a safe account. This is true for many reasons as follows:
- Freedom and Options– Cash on hand provides a business owner with options regardless of the economic, industry, or company situation at various times. Options means freedom and freedom means peace of mind to weather whatever storm the business is going through.
- Thrive in a Downturn– A downturn in the economy can provide tremendous opportunities to those companies with a large cash reserve. These opportunities can be a possible acquisition at a reduced price, lowering prices to be competitive in a low price environment, keeping good people and seeking excellent candidates to add to your team who now may be looking for other opportunities.
- Discounts and Deals– A large and adequate cash reserve can enable business owners to negotiate with suppliers and vendors for much lower pricing and discounts in exchange for paying earlier than competitors. This, of course, will eventually lead to more cash.
- Exiting on your Terms– A large cash balance enables business owners to review potential offerings for their companies without pressure to sell. Less pressure means better negotiating and exiting on your terms rather than the acquirer’s terms.
- Assisting Others– I have had the privilege of working with business owners that are some of the most charitable people I know. Adequate cash balances can enable the owner to donate to causes important to them and the community and assist others through hard times.
Everything a business does should have as a primary goal the producing of positive cash flow and the establishment of an adequate cash balance.