The expression, “Cash is King,” has been around a long time, and for good reason: Cash is the first asset listed on a balance sheet (see definition below). Hence it is the leader (King) of all other accounts. In chess, the King is the highest-ranking game piece. All other pieces protect the King. If the other pieces are knocked out, the King will fall and the kingdom is lost.
Another analogy: just as the King is the highest-ranking face card in a deck of playing cards, Cash is the leader of the accounting pack.
Whichever analogy you use, a leader needs a team and vice versa. Cash can make or break a company. Without cash, bills cannot be paid, and employees will not be paid and you may incur more debt.
Can we live without credit in today’s economy? Doubtful. However, we can be smarter about how we manage that balance between cash and credit. Credit can be good, but if you don’t have the cash to pay off the debt you can get into a less-than-desirable situation very quickly.
It is vital that we practice doing things within our means, especially in a weakened economy. It is difficult and won’t happen overnight, but it can be done. It starts by paying attention to the ins and outs of your cash. If you have debt are you able to make your monthly payments and still pay all of your monthly operational expenses (e.g., hay, grain, training, electricity, employees).
Some ways of protecting your Kingdom that you may want to consider:
* Create a plan.
* Map out your income and expenses each month.
* Seek out a method for a cash plan or budget that works for you. Is the amount of cash that goes out each month higher than the cash coming in? I do not recommend incurring more debt. Put off some projects and cut your expenses in order to increase the amount of cash in while not increasing the amount of cash going out.
* Do not take on more than you can manage.
* Have patience.
* Build your client base. Once you have a solid base, grow your business in small increments.
* Keep your emotions away from your financial decisions. If you are too emotionally attached to your business you may want to pass the financial decision making to someone else. Channel the emotional side towards other areas of your business, such as customer service or running of specific programs.
Glossary of Terms
Balance Sheet – Financial summary of assets, liabilities (debt) and net worth of a business, organization or person at a given date.
Liabilities + net worth = the sum of all assets.
“Horse Chess-Nut” by Artist Sandy Gianniny (via google images search)