This post is part of a series on a lack of working capital. You can find part one here and part two here.
How a Lack of Capital Reduces Your Bottom Line.
Today, businesses both large and small are looking to increase their profits. While in the past it may have been enough for a business to work solely on increasing its sales, that is no longer the case. Now, more than ever, businesses need to focus both on growing their sales and reducing their costs.
Most businesses immediately start working on finding new vendors and using those new relationships as leverage to renegotiate their current vendors' prices. While this can be a good starting strategy, a business can only get so far with their vendors by trying to get rock-bottom pricing. At some point vendors will decide to let its customer try out that new vendor and realize why their prices are so low. That is where the savings stop, unless, of course, there is money to be saved around the edges.
The Green Rule: Wise Cash Management
Everyone has heard of the golden rule: treat others as you would like to be treated.1 Some people have heard of the platinum rule: treat others as they would like to be treated.
But, have you ever heard of the green rule? It's simply this: those who have cash make the rules. A business that is in a strong cash position can drastically improve its bottom line through wise cash management practices. A business that can quickly turn its accounts receivable and inventory into cash can find itself in a strong position to save itself some money and increase its profits.
In the next few posts we’ll look at four ways having cash on hand can help your business improve its bottom line.
- Eliminating Finance Charges
- Establishing Business Credit
- Buying in Bulk
- Establishing Early Payment Discounts
There is also a satirical version of the golden rule: those who have the gold make the rules. ↩