Kentucky Center for Agriculture and Rural Development

View Original

Cash is King - Managing Risks Around Cash

Have you ever heard the old saying “Cash is King”? Cash refers to the total amount of cash a business has either in the register, bank account, or other liquid accounts that are easily accessible. These are the funds you can use to make business decisions, pay employees, make investments, or even stay afloat during an economic downturn (think Covid-19). It is important to understand the cash flow needs of your business and the potential threat of not having enough cash on hand. One of the most common challenges we see in businesses with whom we work is cash management. 

Here are some tips on how to manage risks around cash.  

  • Reflect: Sit down with your books and look back on the past year. Did you have months that seemed extremely tighter than others? Will this be a regular pattern each year for your business model?  

  • Set Goals: What are some goals you have for your business this year? Will you need to expand production to sell into a new market or fill a client order? Consider how to save up funds to pay for any expansions. 

  • Budget: Create a month-by-month budget for your business each year to help understand the minimum amount of cash needed to keep the doors open and lights on. Once a budget has been established, you can revisit your goals and see what adjustments can (or need to) be made.  

  • Review Your Options: Starting a new business is difficult and managing cash flow in a business, especially a seasonal one, can be hard to do. One option would be starting a line of credit with a local lender. Remember to factor in all fees and interest rates when making this decision.  

It is important to understand not just how much cash you have but how much cash you need. If you would like to talk with KCARD about your business or would like assistance in calculating your cash requirements, give us a call at 859-550-3972 or email us at kcard@kcard.info