Is Cash Really King In Small Business?

By Salim Omar, CPA

Although cash is critical, most small business owners put emphasis on profits instead of cash flow. The dot-com bust is a painful reminder that profitability does matter but that cash is king. Ill even go one step further managing cash flow is THE most important financial measure in any business. Knowing how much cash is coming in versus the amount required to go out, not only helps you understand what amount can be re-invested into the business, but can also determine whether a company will survive.

Not all cash coming into a business must come from operations. Investments, both debt and equity, can provide intermediate cash to run a business. However, it is critical to know in advance what your cash needs will be to find the best source of funds. Sitting down each quarter or at least on an annual basis to review these concepts is important for generating cash flow for your business.

When you imagine a new business, you think of what it would cost to make the product/service, what you could sell the product/service for, and what the profits might be. We are trained to think of a business as sales minus costs and expenses, which are profits. Unfortunately, we dont spend the profits in a business; we spend cash. In fact, many businesses discover that they have little cash flow at the end of the year even though their profit and loss statement shows a decent net profit.

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Profitable companies go broke when they have all their money tied up in assets and cant pay their expenses. Working capital is critical to the health of your business. Unfortunately, we dont see the cash implications as clearly as we should, which is one of the best reasons for proper cash planning. Businesses have to manage cash, as well as profits to be successful both in the short term and in the long term.

Cash flow and profit are two concepts that are very different from each other and very often misunderstood by many business owners. Hence, adequate attention is not given to cash flow and cash reserves. A company should make all efforts to have enough of a cash reserve to pay bills, salaries and other expenses for several months (or longer, ideally) during cash-flow fluctuations.

You should create a program that will enable your business to build cash reserves which include the amount needed. The program should show how to build it and where to invest it so that it works as hard for you as you did to build it. My rule of thumb and advice to my small business clients is to maintain between 4 to 6 months of a cash reserve at all times. These cash reserves will then be available in the event of a cash crunch or an opportunity that arises.

Business opportunities arise on a daily basis that cannot be taken advantage of due to poor cash flow and lack of a cash reserve. For example, if your business runs on commodities such as sugar for production of products, prices for this commodity fluctuate throughout the year. If the price of sugar dropped substantially, offering your business the opportunity to boost net profits by lowering operating costs, this would be a prime opportunity to take advantage of. But, if your business does not have the cash flow to take advantage of this opportunity, it will miss out on this chance to boost profits.

Cash is king. Simply put no cash equals no business. Tracking the amount of cash in your small business is a vital function that you can never lose a handle on.

About the Author: Salim Omar, author of

“Straight Talk About Small Business Success In New Jersey”

specializes in providing accounting and tax services to small business owners and professional practices in NJ. Salim’s articles are featured in various national magazines including Accounting Today, The CPA Journal, Chiropractic Economics, Wealth Manager and The Two River Times. You may request a free copy of Salim’s new special report titled

“How To Drastically Reduce Your Taxes By As Much As 62% This Year Alone And Put Thousands Back In Your Pocket”

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isnare.com

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Accountants Are In High Demand, Thanks To The Money Momentum Of Tax Season

Submitted by: Helen MacDermott

Finances are top of mind for many households and businesses as tax season ramps up. As a result, it s the perfect time of year for people considering a job as an accountant to get their feet wet in the industry. In fact, the federal government estimates more than 300,000 people are hired every year to work during the January to April tax season.

To help handle the burden of taxes for individuals and companies, many accountants are starting to work overtime, but the profession is flourishing year round. The U.S. Department of Labor expects employment for accountants and auditors to increase by 18 percent between 2006 and 2016. The demand for accountants is growing at a high rate due to an expanding economy and stricter regulations of corporate finances.

The job of an accountant is to help ensure that businesses run efficiently, keep records accurately, and ensure that taxes are paid properly and on time. They are also involved in the analysis and communication of financial information to investors and decision makers within the company, making their profession a high-demand job.

A career in accounting provides many appealing opportunities and benefits. For starters, it often offers very competitive pay. According to PayScale.com the average accountant makes around $44,000 a year, with some making more than $75,000 a year. Accountants also usually enjoy great job security, opportunity for growth, health and medical insurance, life insurance, a 401(k) plan, and paid annual vacation. As a result, it is essential that job applicants differentiate themselves through a college degree as well as CPA certification.

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One way to get proper training is to study online. Learning online has become more popular than ever with more than 60 percent of colleges and universities now offering online degree programs. As a result, students can earn a highly reputable and accredited accounting degree from the comfort of home. This provides the flexibility many people need to juggle school and family life while pursuing a new career path.

Once students receive their accounting degree, they have a variety of paths in the profession to choose from, including:

Public Accountant

Public accountants perform many accounting services for corporations, governments, nonprofit organizations, and individuals. These services cover a wide range of specialties from basic accounting that analyzes revenues, costs, liabilities and assets, to forensic accounting that investigates white collar crimes. Another common public accountant role is as an advisor, discussing tax advantages/disadvantages of business decisions, as well as compensation and health care benefits.

Government Accountant/Auditor

A government accountant/auditor works in the public sector maintaining and reviewing government records and auditing private businesses and individuals subject to government regulation. Government accountants/auditors ensure that any debts are paid and revenues received.

Internal Auditors

Internal auditors reduce internal loss by identifying and minimizing mismanagement, waste, and fraud. An auditor evaluates a firm s financial/information systems, management procedures, and internal controls to verify that all data is accurate and that controls are sufficient. In many cases, the internal auditor will also aid in the design of an organization s computer system.

Management Accountants

Management accountants record and analyze financial information for companies. Their duties include budgeting, evaluating performance, cost management, and asset management. Management accountants also aid in the decision making process by analyzing company records.

About the Author: Helen MacDermott is the Content Manager for

eLearners.com

, where she serves as the director of content creation and sets the course for the eLearners’ content team. Helen has a bachelor’s degree in computer science from Rutgers College.

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isnare.com

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