Why Cash is King and How to Get More of It
In the last two weeks, my stock portfolio dropped significantly in value, and I don’t care. Why? Most of my stocks are dividend paying and thus far at least, the dividends haven’t been cut. What matters is the cash they’re generating which I depend on for a part of my income. That hasn’t changed. Also, I’m quite a ways from retirement, so I can sit tight and wait for the next upswing. The cash generated through dividends is more important than the value of the underlying stock. Cash is king.
You may have heard that old saying. Basically it means that cash is more important than the value of assets or even your profits. And most of the time it is.
Here’s another example. I bought a house with a 30-year fixed mortgage. My mortgage payments were not going to increase. I worked my monthly payment into my budget, and I knew, based on my income, that it was affordable as long as my income didn’t decrease — not likely. Then, the Great Recession of ’08 happened. My house dropped significantly in value and I didn’t care. Why? My monthly payment remained the same, my income remained the same, and I wasn’t going to sell my home anytime soon if ever. The value of my house didn’t matter and I knew it would go up again eventually because it is in a great neighborhood. And it did.
Cash for Your Business
What is a cash flow statement? It’s cash in less cash out. If your business is cash flow positive every month (more money is coming in than going out), you’ll be okay.
What is an income statement? It is revenue or sales, less expenses. The result is your monthly profit or loss. You can operate at a loss for a period of time, and as long as you are cash flow positive, you can still be okay. Here are some suggestions for how to manage your cash flow in a business:
- First of all, you might ask how you can be cash flow positive while still operating at a loss. Usually it’s because you can borrow money or raise money by giving away equity in your company. As a side note, some income statement “expenses” do not result in cash going out. An example is depreciation. This is when you write-off fixed assets like a computer, for a specified amount of time (established by the IRS) but you’ve already paid for it, so it doesn’t result in…
