Cash is King - image budget-cash-coins-33692-1 on https://out-reach.com.au

Cash is King: The importance of cash in today’s society arises from its absolute storage of an indisputable amount of wealth and the ability to immediately transfer of that wealth in a failproof way during transactions. Its significance has been captured in the saying – “cash is king” – an old saying that has also remained as one of the truest saying through all times. Where an individual uses cash to buy itself food and pay for transport and household bills, a business uses cash to pay for services and wages required to keep its operation live. Although your Lamborghini or beachside mansion may be valuable, you are unable to use them to pay for daily expenses because their values are negotiable, and the sales process usually takes a long time.

Not having access to sufficient cash when required, such as in the face of overdue debts or paying employee wages will have serious consequences, such as falling into bankruptcy. In fact, according to a research study conducted by Quake Capital, “Lack of cash” is the second most common reason why start-ups fail. Similarly, InsuranceQuotes identified that 29% of the small businesses fail due to running out of cash whereas 82% were due to cash flow problems.

Cash is King

There are several cash management strategies that can help businesses to secure access cash when needed. One method is to maintain a cash reserve to cover for short-term debts. This is akin to the reserve requirement of banks – the amount of cash that banks must have, in their vaults or at the closest Federal Reserve bank, in line with deposits made by their customers. However, money kept in cash reserve pays the opportunity cost of not being invested in other higher-return assets, so a cash reserve that is too high is simply inefficient. Another strategy is called asset-liability matching. The concept is about liquidating assets in an organised way to generate enough cash to cover for expenses or debts as they fall due. The amounts that you need to generate need to cover the shortfalls between your revenues and liabilities/expenses. There are also several other ways that can help businesses with cash management, but this article is not focused on that.

Of all the expenses that a business would incur, wages are probably the most non-negotiable expenses that your business need to pay for. Unlike third-party services or contractors that you could probably negotiate a payment period and payment extensions, most likely at the expense of paying a high interest on the amount outstanding, the payment of wages is almost non-negotiable in Australia, both in terms of the amount and timing. Each employee has his/her own personal household expenses that he/she relies on the salary to pay for. Therefore, not paying wages in full or on time could have drastic negative repercussion to employees’ lives and lead to business strikes and insolvency.

Wages are also the largest components of business expenditures in Australia. According to the Reserve Bank of Australia, the share of total income paid to workers in wages and salaries (the “labour share”) is around 53%[1]. This is attributed to the high living standards we have in Australia, and also reflects the intense competition Australian businesses participate in for a shortage of talents. While this means Australian employees are well-compensated for working here, it also means Australian businesses take on huge financial pressure from hiring onshore. The pressure not only restricts the growth of small Australian businesses it also erodes Australian businesses’ competitiveness internationally.

Hiring from offshore labour market with lower labour cost is an effective way to lower the wage spending while continue to attract top talents to your business. Most large corporates have long benefited from overseas labour markets by relocating offshore entire non-core cost centres such as IT support, admin and customer services. According to IBIS research, Australia imported A$5.7b of professional services in 2017[2]. However small businesses have yet benefited from this strategy due to the complexities in navigating overseas labour regulations and costs in setting up entities overseas.

Talent Outreach, together with its remote work job board Recruit Hall, were founded with the mission to help small businesses benefit from overseas labour markets. We provide specialised end-to-end services that will help you search, engage, hire and retain permanent remote workers from overseas. Using our services, small businesses will be able to benefit from global talents in a hassle-free and compliant manner. By expanding your hiring geographical area, you free your business from competition for talents and expensive wage expenses. Compared to Australia, candidates from South-Eastern countries only demand one third to one half of the salary. These countries also have a net positive labour supply which means the overflowing of talents could complement Australia’s shortage of talents. To understand how you could benefit from hiring permanent remote staff from overseas, please leave us a message and we will get in touch very shortly. You can also read other benefits of hiring permanent remote staff from overseas in our other article.

Cash is King!

[1] https://www.rba.gov.au/publications/bulletin/2019/mar/the-labour-and-capital-shares-of-income-in-australia.html

[2] https://www.theaustralian.com.au/nation/politics/labor-strike-on-companies-sending-jobs-offshore/news-story/40d3b804534d2207595240b5b070a4b4

Cash is King

Leave a comment

Your email address will not be published. Required fields are marked *