Managing Cash in Turbulent Times

Published date01 November 2013
AuthorJames B. Edwards
Date01 November 2013
© 2013 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.21901
James B. Edwards
An owner of a
private business
was asked, “How
much cash does your
business have?” He
answered as follows:
“Some days there is too
much; some days there
is not enough; and
then some days there is
barely enough.” He was
then asked, “Is that a
problem?” He replied,
“Yes, each of these conditions
usually happens on the wrong
days. There’s a prevailing crisis
all the time because I am always
in fear of what happens next.
I tend to overspend positive
net cash flows on new things,
making them into temptations
instead of buffers for leaner
days. And even on the days
where there is barely enough, I
tend to worry all day long about
whether or not we are going to
make it. Then I worry all night
about the zero position that
begins the next day.”
It would appear that the
best condition is to maintain
safe cash positions at all times,
provided your sources of cash
are sufficient. It’s similar to
inventory safety stocking. How-
ever, a company may be holding
too much cash. Is there a cost
How much cash does your business have? “Some
days there is too much. Some days there is not
enough. And then some days there is barely
enough,” lamented one business owner. And he’s
not the only one with this problem, reveals
the author of this article. Many business own-
ers have trouble coping in this roller coaster
era of prevailing crisis. But is there a solution?
© 2013 Wiley Periodicals, Inc.
Managing Cash in Turbulent Times
to holding too much cash? Yes,
it’s referred to as an “oppor-
tunity cost.” If debt is used to
maintain a safe cash position,
then you may be incurring
excess rent (interest) expense
for use of this cash, which is
not yielding a return. If such
positions are supported by real-
ized retained cash earnings,
then internal growth may be
retarded through such displace-
One could conclude that
when your cash availability levels
are low and your debt service
capacity is exhausted, there may
not be any more life-support
options available. Cash is king,
because no cash = no busi-
ness. Cash is the life-sustaining
plasma that moves throughout
the business processes along the
value-added chain of business
conduct. This “blood” feeds the
business activities
that support busi-
ness processes that
produce economic
objects. During
perilous times, even
momentary liquidity
shortages can kill an
organization when
payrolls cannot be
met for the time
being and suppli-
ers place the patient
on a “cash-and-carry” status.
In such times there is very little
tolerance for lags in the veloc-
ity of cash flows. Cash on hand
often cannot be juggled enough
to provide immediate cash relief
for crises that pop up when
they have not been anticipated.
Under these conditions, compa-
nies may have already leaned on
the trade payables to the extent
that there is no further float
available in the operating cash
It’s important to recog-
nize that cash is what keeps
your business alive. Manage it
with the care and attention it
deserves. It’s very unforgiving if
you don’t. Running out of cash
is the definition of failure in
business. Make the commitment
to do what it takes so it does not
happen to you.

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