The Importance of Cash
I recently spoke at the Home Entertainment Source (HES) conference in Dallas, where HES President Bob Cole, CEO of Hatfield, Pa.’s World Wide Stereo, gave an opening address that touched on numerous ideas that make his business great. It isn’t the brands you carry, he stressed; more importantly, it’s the other things, such as your people and your brand image, as well as taking advantage of opportunities when they present themselves.
I concur, especially when it comes to taking maximum advantage of opportunities. Identifying them can be difficult, but when you do, you need to make sure your financial house is in order to maximize them.
Some opportunities can have significant impacts on your future sales, income and profitability, and most require either cash or credit. I focused on this during my talk at the HES conference, and I’ll share it here with you.
Flexibility and versatility
Cash and credit gives you the flexibility to take advantage of opportunities that don’t come along every day. Two examples: buying real estate for a location you’re now renting, or the ability to open a new location. Cash can enable you to hire additional installers, or to purchase or lease trucks to speed up installation delivery times. A large custom retailer recently told me one of his biggest costs is overtime, to make sure he keeps his customers happy with timely deliveries; more installers and vans would help to solve that problem.
How important is cash? In comparing three of the larger “public” electronics retailers— Best Buy, Circuit City and Tweeter—we can learn the cash position of each by examining their balance sheets. In fact, they have very different cash positions. Best Buy certainly can be ranked (by size and recent profitability) as the most successful, followed by Circuit City and Tweeter. If we compare the amount of cash and cash equivalents on the current asset portion of their financial statements (see graph), we get a very clear idea of the percentage of these assets to their total current assets.