What Are Cash and Profit and How Do They Work?
These two financial secrets will help you to survive in the business jungle.
A couple of years ago, I started to work as a Finance Director (CFO) for a large American multinational company. I will never forget my second day. It was late evening, and I was looking at the bank balance. And I saw….$0. There was no balance at all!
I was frozen and petrified. How was it possible? The company was really huge and made millions of dollars in profit, so how can I see no balance on our accounts. I also started to contemplate if my decision to join the company was right. I was close to reviewing my contract to see an exit strategy. At the end of the day, nobody wants to work in an environment with a solvency problem, right? Especially if you are a person 100% responsible for finance, and it’s your second day on the board.
It took me one subpar vending machine coffee and a nervous hour to deep dive into our company’s ERP systems, and then I saw it. Of course! The company used so-called cash pooling. Cash pooling means the whole cash bank balance is sent to a special central account every evening. This central account usually has a very good interest rate, and money sleeps there one night. Then they wake up in the morning and return to the normal account. The beauty of such a…
