Time is king: cash shortage a sign of some deeper problems.

• Author: Fowler, Mark H.
• Position: Professionalissues

We often think that the most important aspect of managing cash is, quite simply, cash. We have all heard "cash is king" when referring to challenging situations. But the underlying aspect of cash management is actually time.

A shortage of cash is usually the most obvious problem of a challenged business. Payroll can't be paid, the bank is pulling the loan, the venture capitalist won't advance another dollar, customers are paying slowly and vendors won't deliver essential components.

While cash is the immediate problem, the situation is a symptom of something greater strategic and tactical missteps by management that have eroded operational integrity.

But why focus on what went wrong? Shouldn't we just find more cash? Not necessarily. After all, if those in the business couldn't manage money before, how will they manage additional funds?

A Different Tactic

A structured approach to cash management is needed to address the well-being of the company and its stakeholders. Being short on cash becomes a consuming endeavor. Everyone's time and energy is devoted to finding enough cash for today, tomorrow and next week. With so many people involved with cash, no one is focused on the corrective actions needed to make the company whole and avoid future similar situations. The company then slips away because there was no meaningful change not a lack of cash.

The first thing to do is to assign one person to manage cash. The others need to get back to work investing their time to correct the real problems, such as rebuilding customer relationships, retooling systems, dealing with their industry image and PR and increasing productivity.

Cash management needs to address all aspects of the cash process. However, before a controlled system is in place, one potential problem is reacting to or creating assumptions that have not been validated. For instance, the CFO, working on the assumption that the company will receive a big check next week, pays a number of "necessary" bills. But that check doesn't come for two weeks and the company is actually in more trouble because of promises made. If the company doesn't have a credit facility in place to support those checks, this is illegal per California Penal Code Section 476(a).

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In this situation, before bills were paid, the questions might have been: "Are these necessary and important bills to pay?" or "How much information do we have on the customer to rely on their promise about sending...