Why cash is king in business?
Without generating adequate cash to meet its needs, a business will find it difficult to conduct routine activities such as paying suppliers, buying raw materials, and paying its employees, let alone making investments. And it should have sufficient cash to pay dividends and keep its investors happy.
Cash is king because opportunities can come up at any time and may no longer be available by the time you are done liquidating some of your non-liquid assets. When you have cash, you are able to secure good opportunities as they come and make more money.
Because of how precious cash can be during times of financial stress, many have said that cash is king. The phrase means that having liquid funds available can be vital because of the flexibility it provides during a crisis.
Cash is king in a startup business because it is the single infallible method of paying vendors, debts, and all operating expenses when revenue takes a hit.
"Paying in cash typically saves the small business owner between 2% and 3% of the transaction price in interchange fees. Interchange fees are the fees charged by the bank, the processing company and card network to process a credit or debit card transaction," Johnston said.
Cash allows you to keep closer control of your spending, for example by preventing you from overspending. It's fast. Banknotes and coins settle a payment instantly.
Top management: Customer is more than a king
A businessman nurtures his business like his first born. He thus knows the value of every customer. To him, customer is not just the king, he is in fact everything. He owes it to the customers for his present enviable position.
The phrase "cash is king" refers to the concept that money (cash) is more valuable than any other type of financial tool, such as stocks or bonds. This statement is frequently used in the stocks market when prices are high and investors opt to preserve their money until when prices are lower.
Money markets are capturing a record inflow of $1.4T in 2023, according to BofA Research.
Cash keeps the business running. Cash is used for things like: Paying expenses – the things that are necessary for the successful daily operation of the business like employee salaries, sales and marketing expenses, supplies, and inventory. Investing in new capital assets to grow the business.
Who first said cash is king?
The origin of the phrase “cash is king” is unknown, but it is said to have been popularised by Pehr G. Gyllenhammar, then CEO of Volvo, in 1988.
Profit cannot precisely determine where your business stands, while cash flow can. It cannot be manipulated to show business growth when it's not the case. That's why owners and investors prefer to determine the health of a business based on the cash flow of an organization.
There are a couple of reasons why cash flows are a better indicator of a company's financial health. Profit figures are easier to manipulate because they include non-cash line items such as depreciation ex- penses or goodwill write-offs.
In this example, cash flow is more important because it keeps the business running while still maintaining a profit. Alternately, a business may see increased revenue and cash flow, but there is a substantial amount of debt, so the business does not make a profit.
“While temporarily worthwhile, holding cash tends to be less rewarding than a diversified portfolio.” Source: Carmignac, Bloomberg, Diversified portfolio consists of 60% S&P 500 and 40% US 10 Year Treasury bond in Total Return terms.
No interest charges.
There are no additional charges when you pay with cash. If you don't pay off a credit card purchase within 30 days, you'll likely pay interest (a monthly percentage charged on the amount you borrow from a creditor). Steering clear of interest by paying with cash can help you save money.
Cash flow measures how much cash a company takes in versus how much it expends. More cash coming in than going out means the cash flow is positive. If the opposite is true, the cash flow is negative. A business is considered healthy when its cash flow is positive for a prolonged period of time.
THE CEO. Most companies will have several executive directors responsible for the day to day running of the business and these director report directly to the CEO. Above all others, the CEO is the top decision maker in the business who will delegate responsibilities to their executive management team.
According to Statista, regional banks are the most profitable financial business, realizing 30.31 percent in profits as of January 2023. Money centers have nearly 27 percent profit margins, and nonbank and insurance services see 26.32 percent profits.
Highest-paying business jobs FAQ
Depending on the industry and your skill set, some of the highest-paying positions within business administration are Chief Financial Officers (CFOs), Chief Operations Officers (COOs), Chief Executive Officers (CEOs) and Marketing Managers.
Do millionaires keep cash?
Many millionaires keep a good chunk of their money in highly liquid assets. The most liquid asset is cash on hand. After which, cash equivalents offer the highest liquidity and act as very lucrative investments.
For most people, it's not anywhere near enough to retire on, but accumulating that much cash is usually a sign that something's going right with your finances. That said there's nothing magical about a six-digit number — if you think you can reach financial stability with a smaller amount, then great!
Keep Cash to a Minimum
From a security point of view, cash is the most insecure asset you can have. Keeping the amount of cash you have in the house to a minimum in the case of fire or theft is a good rule of thumb, said Ryan McCarty, CFP, lead advisor at Castle Rock Investment Company.
The Great Depression lasted from 1929 until about 1939, leading to massive unemployment and bank closures worldwide. Was cash king during the great depression? Yes, it was. Those who had access to cash were able to benefit from the plummeting asset prices around the world.
As people move toward more electronic or digital forms of payment, it might seem like paper money is on its way toward obsolescence. But experts say that cash will always be around.
