2021: Cash is Forever King

Like many others, I am bullish about the 2021 economy.  Pent up demand will be unleashed as vaccines are rolled out.  Already, we are seeing signs of companies preparing for an increase in demand.  Inventories are being built.  Job postings are up.  For a lot of industries, meeting demand will be a challenge. 

For anyone that has experienced business growth, a familiar refrain will be played:  growth requires cash.  It is common for businesses to underestimate the working capital (inventory and receivables) required to fund growth.  A business needs to build a product before it sells it.  Once a product is sold, it takes time to get paid.  In the meantime, employees expect to be paid.  Rent needs to be paid.  Suppliers generally like to get paid too (hint, hint to any customers reading this!). 

Cashflow will be a challenge for a lot of businesses in 2021.  Many small businesses are still struggling to meet cash requirements.  As demand increases, so too will their needs for cash.    Many large businesses take advantage of the situation by demanding obscene payment terms. 

An old business adage says, “Nothing happens without a sale.”  That is true but it needs a caveat:  “Nothing happens without a sale but really bad things happen when a sale occurs and cash is never generated.”  Sales are necessary but not sufficient to have a viable business.  Pay attention to your cashflow.  Here’s to a HEALTHY and prosperous 2021. 

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