How to Take Your Cash Management From Short To Long Term
By Daniel Margolis, CompTIA
Some people live paycheck to paycheck, and so do some businesses. According to market statistics produced by Corelytics, the typical IT solution provider maintains an average cash balance equal to 46 percent of average monthly sales. Meanwhile, many companies rely heavily on credit cards to make purchases and stretch cash. This is living on the edge and leaves a company in a vulnerable position, often one bad deal away from shutting down or perhaps closing its doors for good.
Ideally, a small business has the equivalent of two to three months of sales on hand. This allows business owners the flexibility to focus on growth and expansion rather than putting out fires. But even companies with a healthy reserve of cash are not immune to such panic; conditions may shift and they may have a near-death experience and need to start juggling bills in a hurry. The danger with this mode of operation is that companies pay bills as they can, but then run short when it’s time to do things like pay employees. When this happens, the company is probably not going to make it.