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Cash is King

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by Natasha Coker-Jones

Dr. Victoria Phillips-Jerome answers questions in a seminar entitled Cash is King


You’ve heard the statement “cash is king”. Yet many entrepreneurs grope in the dark when it comes to managing this precious asset.

This reality is what inspired Dr. Victoria Phillips-Jerome of Ayobele Financial Services and Economist Mary King of Mary King & Associates Limited to host a one-day seminar targeted at small business owners/managers and those desirous of starting their own business. Titled “Cash is King”, the seminar held on June 25 covered topics such as differentiating between cash and profits, generating cash flow statements, inventory management, billing and collections, managing your accounts payables, and investments. The tag team of Phillips-Jerome and King drew on their combined experience and expertise in the field of financial services consultancy to deal with a topic that has become even more felicitous given the global turn of events in the financial world.

Profits and Cash

“A lot of persons in operating a business have difficulties in differentiating between cash and profits,” Dr. Phillips-Jerome told the group. “Small businesses fail, not because they don’t have the expertise to operate the business, but because they don’t understand the importance of having cash in the business. If we are in a small business, we need to understand ‘I must have cash’.”

Dr. Phillips-Jerome, a Lecturer in Financial Management at the University of the West Indies, explained that profit is simply what is left over after you subtract expenses from revenue. “It does not discriminate between revenues that have been booked, collected, and is sitting in the bank versus that which has been booked but languishing in Accounts receivables.”  And while profits are good and ultimately essential to the viability of the organisation, they do not keep the doors open. Cash does.

“If you cannot pay the rent, you will be out. You cannot go to the bank and say you have X profits. You must have cash,” Dr. Phillips-Jerome said.

Cash is literally what you have in the bank. It is the only truly liquid asset. “This helps you to satisfy your bills,” Dr. Phillips-Jerome said. “You need your organisation to have liquid assets so you can meet payroll and pay bills. If your money is tied up in inventory and you cannot convert into cash, you are in trouble.

 “I have seen a lot of times that a business is running and running well but you are tying up too much money in long term assets and you are not taking care of the short term.”  She said while it is true that assets such as account receivables and inventory can be converted into cash, they are not the same as cash. “Receivables cannot become payroll unless they are collected.” And not paying employees, or paying them late, is a sure-fire way to lose them.

Another reason that cash is king is that many start-ups are unable to obtain credit from suppliers. This leaves some in a quandary especially when demands are made on them to accept credit. Dr. Phillips-Jerome advice was clear: “Don’t give credit.” Moreover, ‘friends’ who ask you to extend credit, are not really your friends, she argued.

Cash flow Management

Cash flow refers to the inflows and outflows of cash over the same period of time. Whenever there is more coming in than going out, the business has a positive cash flow. A negative cash flow occurs when the reverse happens. When that happens, the organisation must dip into its cash reserves or borrow money in order to make the cash flow neutral or positive.

Dr. Phillips-Jerome said that the key to effective cash flow management is to ensure that there is always a reasonable buffer between what flows in and what must flow out. For the small business owner a cash flow budget is a must as it helps the decision maker to determine whether or not cash flow will be positive or negative based on forecasted inflows and outflows. It can literally help the entrepreneur identify the months of surplus and those of deficit.

Develop a Good relationship with your Banker

Your relationship with your banker is one of the most important relationships as a business person. “When the other businesses don’t want to give you credit, you can go to the bank and they can look at your track record.”

Dr. Phillips-Jerome advised: “Let the bank understand your business. Don’t surprise your banker. Don’t hide from your banker when things are bad. Your bank must know.” This point was affirmed by a former banker who sat among the participants.


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