The importance of cash to a business
Cash refers to the physical money a business has in notes and coins, along with any money it has in the bank.
The management of cash is very important as cash allows a business to pay its bills. The main cash payments a business makes include:
- payments to
- payments to employees
- , such as rent, electricity and telephone bills
When a business has just a few large customers and they fail to pay on time, the business’ position is badly affected because the business does not have money it was expecting to have. This can lead to the business having financial difficulties and even failing.
A business can arrange terms with its suppliers, in order to pay for raw materials or stock at a later date. Credit arrangements can also allow customers to pay for products or services within 30, 60 or 90 days. If a business allows its customers credit terms, it is a sensible option to also negotiate longer credit terms with its suppliers.
Profit
refers to the amount of money left over once all costs have been deducted from all . It is important to know that not all cash in a business is profit.
Profit is usually calculated on an basis. However, calculating it monthly can help a business by showing that it is and indicating whether it will be able to achieve its profit targets.
