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Profitable Business, But Where is the Cash?

Business intelligence, Cashflow, MiBI | [fa icon="comment"] 0 Comments


We’ve all heard the expression “cash is king”. Whether it’s the economy, financial markets or the local dairy - cash improves liquidity, productivity, debt management and gives peace of mind. In this blog we’ll uncover a few reasons why your business might be more cash poor than expected and why having a bit of extra cash lying around for a rainy day could just shift your business from good to great.

The origin of the “cash is king” expression takes us back to 1988 when Pehr Gyllenhammar, the then-CEO of Volvo, was commenting on the 1987 stock market crash. He might not have realised just how important his words were at the time but they have since been adopted as a way of emphasising the importance of cash flow in a healthy business. Cash allows you to cover short-term operations, buy assets such as equipment and machinery and make the other investments needed for growth and prosperity.

Given that more businesses fail for lack of cash flow than for lack of profit, having a good relationship with your bank is essential. However, CFO of Genesis Energy, Andrew Donaldson, points out that asset bubbles arising due to excess liquidity pumped into economies, risks such as falling commodity prices and the current crisis in Greece indicate a more conservative approach by banks.

So, there’s no better time to understand that underlying question - why is your profitable business so starved of cash? On paper things are looking rosy; you’re turning a profit, invoices are being paid and money is flowing in. Yet paying the bills each month is like juggling water balloons - it takes precision and a lot of focus just to ensure you don’t end up drenched or in this case, missing your payments.

Here are a few things to keep an eye on:

  1. Average age of receivables. Remember that you are not a bank, so ensuring incoming funds are arriving in a timely manner is essential to keeping cashflow positive. Conversely negotiating payment terms with creditors is also essential, don’t pay earlier than you need to but also make sure the lights won’t be turned off.

  2. Loan repayments primarily hit the balance sheet, with only the interest portion of the payment hitting your profit and loss statement so it’s important to keep tabs on what is being repaid and when.

  3. Shareholder drawings are the same – it’s important to make sure that by pulling money out now you aren’t creating a problem several months later.

  4. Fixed asset purchases don’t hit the profit and loss statement until they are depreciated. While the cash is leaving your account today, the expense is recognised over the life of the product.

  5. If you have inventory, it’s important to ensure a healthy supply chain to minimise the amount of money tied up in inventory while ensuring the ability to deliver.


There’s a lot to keep tabs on and while it’s important to get the details right, you also need time to look at the bigger picture. Rather than managing complex spreadsheets, smart businesses are increasingly adopting business intelligence platforms like MiBI to help model the impact of factors like increased sales, negative cash flows, funding shortfalls and what’s hiding in the budgets so their time is spent on growing the business, not dealing with ever-cumbersome spreadsheets.

But cash is a sword, not a just a shield. Having spare cash on hand is just as important as having enough cash to meet operational requirements. As CIO of Delegat’s Wine, Wilson Alley, points out, being a cash-rich business also provides opportunities. You need to have cash on hand to take advantage of new technology and your own innovations, just as much as being ready to capitalise on changes in the market. Cash hoarding can be a problem when taken to the extreme, so the right amount of excess cash needs to be put to work. Having the right BI models in place to ensure that you’re able to leverage as much cash as possible in your business, yet be able to jump at new opportunities faster than competitors, is essential.

In the words of billionaire investor Mark Cuban, “every five years or so there is a bubble bursting or amazing deals available because of a change in the economy… Cash is king–and works far better than Ambien when you want a good night’s sleep every night.”

Take control of your cash flow today; MiBI is an affordable, cloud-based financial budgeting, forecasting, and reporting solution that could help your business make the shift from good, to great. To find out more, download the MiBI brochure here.

Topics: Business intelligence, Cashflow, MiBI

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