Cash is King: Always prioritize cash flow management over profits, as cash flow keeps a business running. Even if a business is profitable on paper, poor cash flow can lead to bankruptcy.
Here are three examples of Cash is King:
- Invoice Payment Terms: A consulting firm shortens its payment terms from 60 days to 30 days to improve cash flow, even though it means accepting slightly lower contract values. This ensures the firm has sufficient liquidity to cover expenses like payroll and rent, avoiding cash crunches.
- Inventory Management: A retail business keeps its inventory lean by ordering smaller quantities of stock more frequently, rather than making bulk purchases to maximize profit margins. This helps the business maintain positive cash flow and avoid tying up too much capital in unsold goods.
- Subscription Model: A software company shifts from one-time sales to a subscription-based model, providing a steady stream of monthly revenue. While the overall profit may grow more slowly, the reliable cash flow keeps the company financially stable and able to invest in further development.
