Create Cash: Be Your #1 Vendor

by Doug Smith, President, The Woodhaven Group

Small and medium sized businesses should borrow a strategy that is being used by some of the largest companies over the last 18 months.

Large companies have been accumulating major amounts of cash.  Some of this has been used to pay down debt and improve their balance sheets for the analysts and shareholders on Wall Street.  An even larger reason may be the concern about the economy in the future.  The smart managers want a cash cushion on hand to offset unexpected surprises in the near term.

While certain parts of the US economy have improved and seem to be trending upward, many believe we are still not out of the woods.  With massive federal and state debt, a very cautious consumer and events like the oil spill it becomes harder to predict the future.

What should you do?

As an owner or CEO of a small or medium sized business I suggest creating a cash reserve like the larger companies.

How do you do that?

When planning who is getting paid each week include your own company in the accounts payable schedule.  Set aside a small amount each week in a stand-alone account to act as a corporate nest egg if and when the time comes that you will need the backup cash.

You will be surprised how a small amount set aside each week will add up over time.  Don’t be tempted to dip into the account to fund a discretionary trip or new vehicle.  It is an emergency cash back up.  Keep it that way.

If the big companies can do it, so can you.

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