Managing Cash in Turbulent Times

• Published date: 01 November 2013
• DOI: http://doi.org/10.1002/jcaf.21901
• Author: James B. Edwards
• Date: 01 November 2013

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© 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21901

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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-

ments.

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

cycle.

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.