Reasons why Cash is King for Business
"Cash is king" is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tools, such as stocks or bonds. ... Many businesses only accept cash as a form of payment, as opposed to credit cards or checks, hence the phrase "cash is king."
Cash is the lifeblood of a business and a business needs to generate enough cash from its activities so that it can meet its expenses and have enough left over to repay investors and grow the business. While a company can fudge its earnings, its cash flow provides an idea about its real health.
Examples of Cash is King
It's a very good investment. ... We should keep some of our money easily accessible in cash form. That way, when the market dips, we can get it quickly. The second example shows two university students discussing the experience of buying a car.
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.
Cash is the most liquid asset and can be used immediately to perform economic actions like buying, selling, or paying debt, and meeting immediate wants and needs. Bank can attract significant liquid funds to generate stronger profits, more stability, and more confidence among depositors, investors, and regulators.
Profits incorporate all business expenses, including depreciation. Depreciation doesn't take cash out of your business; it's an accounting concept that reduces the value of depreciable assets. So depreciation reduces profits, but not cash. Inventory and cost of goods sold also affect profits, but not necessarily cash.
The cash flow forecast predicts the net cash flows of the business over a future period. A business uses a cash flow forecast to: Identify potential shortfalls in cash balances – for example, if the forecast shows a negative cash balance then the business needs to ensure it has a sufficient bank overdraft facility.
Examples of cash-only businesses include:
Cash ensures stable currency systems. It is not only the most secure means of payment and resilient in terms of crisis, it also reflects a nation's identity as banknotes and coins are often a nation's calling card, valued by people beyond their monetary worth.
Eze Ego (King of Money) : A True Life History of Chief Victor Nnamdi Okafor Kindle Edition.
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