Why cash should NOT be the "KING" in your business

Last week, I had a catch up with an old friend who owns a small business. We chatted over some cash related issues in his business and mentioned that "cash is truly the king" in every businesses.

While I agree that cash is important, I rejected the notion of "Cash is King" in our business. I suggested that "Cash" should not be the king in your business,

The owner should be the king and cash is merely the subject that we can manipulate as we see fit to ensure our business runs smoothly and in accordance to your business' visions and missions.

Having said that, here are couple of things all business owner should understand about how cash is very relevant to your business:

1. Cash Flow

If you haven't already known, Cash Flow management is very crucial to any businesses. This could be even more relevant to small or medium size businesses as they tend to not have the large cash pool to fund ongoing operational costs.

All business owner should have a good insight of the operational cash flow position and monitor it regularly. Without it, you will not know the actual cash flow position of your business.

It's possible to have a negative cash flow situation despite the large sales and nice profit figure. If this happens, your business may endure the cash shortfall in the short term, but without positive cash flow, it is certain that no business can survive this.

In addition, having a regular monitor of your cash flow will ensure you can put the right strategy as soon as you notice any cash flow issue in your company.

2. Working Capital 

Working capital is the capital that you use to run the day-to-day operation of the business. In other words, Cash is the major component of your working capital (Current Asset - Current Liability).

Close monitor of your working capital via budgeting and forecasting is a good habit to have to maintain your working capital in an acceptable level. If your working capital is too low, you may struggle in growing your business. But if it's too high, it could mean that you're not using your cash properly (i.e. reinvesting).

3. Account Payable

Accounts Payable function as a bridge between you and the supplier. You will need to maintain a minimum level of cash to ensure the business can pay supplier within the agreed term.

Maintaining a good relationship with the supplier is crucial for your cash flow as it may enable you to negotiate a longer payment term in the future.

4. Account Receivable

Just like Account Payable, Account Receivable is a bridge between your business and customers. In addition to customer relationship, you need to manage the cash collection from customers as this will help with your cash flow level.


In conclusion, cash management is a crucial part of your day to day business management and you need to manage it well otherwise bad things can catch you by surprise.

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