In this article, you’ll learn about the Psychology of Cash Flow and how it effects our business decisions – What you can do Now to impact your Net Cash – and How exactly did the U.S. Corporations manage to hoard record cash levels while simultaneously report plummeting profits during the recession of 2008 and 2009?
Juggling Bills – How it happens
A business with a tight budget understands the importance of managing the flow of cash with techniques like juggling bills – a common routine of holding certain checks while releasing other payments of higher priority.
Deciding which bills to pay first involves weighing more than just the due date; it means considering the consequences of certain past due invoices. Nobody wants their power turned off during business hours…even if it means holding onto the landlord’s check for a few extra days.
You are constantly being given new information that forces you to re-prioritize the level of importance of your payables: things like a customer not paying when they said they would, or having lower than anticipated daily cash sales, or a vendor demanding payment before shipping your products.
It means you must filter through the complexity of new data on a regular basis, which sends signals that your cash is insufficient and causes you to question the performance of your organization.
“Are we really profitable?” “Is this report truly accurate?”
The Psychology of Cash Flow
Too often performance is measured by your available cash balance. It’s easy to assume that building cash reserves is an indication that your hard work is finally beginning to pay off. But as cash levels begin to decrease, you may be wondering where the money has disappeared to.
Interestingly, the business cash flow has the power to affect your behavior. Attitudes change, impacting the way you make decisions. Decisions affecting your growth, profitability, and ability to reach your goals. Decisions like putting off hiring an additional salesperson, or not running the usual ad spot.
It’s important to remove yourself from the cash crisis and consider that although cash levels may be depleting, it doesn’t always mean you are losing money. In fact, it may mean just the opposite. You’ve probably heard the concept, “It takes money to make money”. Which means, to grow your company at a rapid pace, it’s generally going to require some capital.
But the more common cause of tight cash flow is neither the result of net losses, nor the consequence of rapid sales growth. Perhaps something else has occurred to throw off the normal rate of cash flowing in and out of your company. Things like increasingly higher owner draws, prolonged rate of payment from customers, slow moving inventory, or re-payment of loans and credit card debt. All of these items are impacting cash levels almost daily, without directly effecting Net Profits or losses.
Take for example the U.S. corporations; while profits plummeted during the recession of 2008 and 2009, corporations simultaneously began hoarding cash, which reached record levels in 2010 according to CNN Money.
I’m not implying that in order to build cash reserves you need to become unprofitable. I’m simply suggesting that profits and cash are not directly related, and thus it’s unhealthy for a leader to run their operation under the assumption that low cash equates to an unacceptable performance – there are too many other variables to consider first…
So how can you cut through the complexity of daily activities in your business to find out what is really happening?
What method can you quickly use which will give you access to better information?
In this Video, you’ll discover how to improve your chances of having a dependable amount of cash, and the key areas that will impact your cash flow efficiency to the maximum potential – relieving stress, encouraging growth, and giving you a sense of control over your business.
Watch the Video Here…