Better Uses for Cash

Business people are lulled into thinking that paying cash is a good way to acquire equipment because doing so avoids finance charges and interest expense and results in lower total cash outlay. In fact, paying cash can be the most expensive way to solve the problem.

There are two main reasons for this:

(a) Liquidity Is Critical. You must have reserves. This can become an outright survival issue when slow paying customers, slow sales or unexpected expenses put pressure on cash reserves. On payday, your employees do not want to know how many people owe you money.

(b) Alternative Uses Of Funds. If all you are going to do with the cash you conserve by leasing is to put in the bank at 3% or so, there wouldn’t be much benefit. BUT, there are so many other ways you can deploy your cash that offer huge potential returns.

Here are ten things you can do with cash which you probably can't do any other way:

• Build a cash reserve in case customers pay slowly.
• Book that big order and be able to pay for the raw materials to produce it.
• Take quantity buying opportunities.
• Get a bargain at an auction.
• Take cash discounts (2% each 10 days is a 72% return)
• Fund R & D projects.
• Fund new marketing programs.
• Hire your competitor's top salesperson.
• Buy your competitor.
• Invest in appreciating assets such as real estate.