Goldilocks Cash Balances

Quick Insight

A high cash balance lowers the risks and profits while a low cash balance increases profits and risks. There are many ways to increase your cash flow so you can invest that cash to increase your profits.

It sometimes feels like there’s a tension between profits and cash flow. You must strike a balance between the two.

Investing all your cash in business assets, and even borrowing money to invest in business assets, increases your returns but also increases your risk of running out of cash. In that scenario, you have low cash but high profits and risk. On the other hand, having lots of cash means your risk of bankruptcy is low, but your earnings are likely low, too. Owners may not be happy with the return they are getting from their investment in the company.

Decide the balance that's right for you and how to get there. The right balance for you may change during the year or during a business/economic cycle.

There are many ways to increase your cash flow so you can invest that cash to increase your profits or reduce your risk.

I wish you cash balances that are the right balance between profit and risk. I wish you well.

- Rob Stephens

Further Insight

CFO Perspective Resources

  • Free Download: Quick Tips for Improved Cash Flow - This guide will help you increase cash flow and reduce dips in cash flow.
  • Free Download: Cash Flow Projection Template - This easy template will reduce the stress of cash flow surprises and position you to capture the next big opportunity.
  • Video: How To Speed Up Your Cash Flow - One of the best ways to increase your cash flow is to accelerate the cash due to you from your customers. I'll show you how.
  • Course: Improve Your Cash Flow - This course shows you how to assess current and future cash flows. You learn techniques to increase cash flow and reduce dips in cash flow. I list critical sources of cash for businesses, along with the pros and cons of major sources.
  • Book: Conquering Cash Flow: The Complete Guide to Small Business Cash Flow Management - Learn how to manage your cash better so you can improve your cash flow, increase your profits, grow your business, and reduce your stress. Discover proven methods to conquer your cash flow.

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