
Certainly making a profit is essential if a business is to prosper long term, but I would argue that cash flow is the single most important thing to worry about in the initial stages of creating a new enterprise. Unless you watch your cash flow, your new business may not be around long enough to show a profit! Cash as they say is king, but in this context, cashflow is certainly queen.
Managing cash coming in and out of your business (or household come to that) is critical so how do you actually do that? Well, it’s firstly important to understand that without sales you do not have a business. That’s an indisputable fact. Sales produce the income you require, but it’s the cost of obtaining those sales, whether a product or a service, which will ultimately decide whether your new venture is still around in 20 years time. Remember that overhead is not only the cost of obtaining sales but of running your whole operation including office costs, cars, vans, staff etc. I always suggest setting up a ledger for income and outgoings right from the start and to check it every day, especially in the early stages. What have you spent that day and what have you received? Do it daily regardless of how busy you are. It’s vital you know what’s going on. Create a three lined column in the middle section and write “available resources” in it, by this I mean either cash on hand or available loans/overdrafts. I.e. cash you can get your hands on. Focus not only on selling as much as possible but on making sure you have a sufficient inbuilt margin to cover your costs of operation, including marketing and tax. Once you have made a sale, focus all your energy on getting paid. Don’t be scared to ask for payment. Honest people intend to pay so will not mind being asked. You do not want customers who avoid paying anyway so weed them out early. Don’t be fobbed off and most importantly don’t let them run up debts that will never be paid. Pay your own bills on time but try to negotiate as long a period as you can as this preserves your cash and improves its outflow. Managing this aspect is as important as getting your own money in, but be honourable; if you say your cheque is in the post, make sure that it is. Read more about managing your cash flow:- Cash flow management: Organise money like a night out
- Top tips to boost your cash flow
- 10 tips for getting paid on time
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