The Importance Of Cash Flow For A Start Up Business
Starting a business is tough
Starting a business is tough. Making money and revenue is the most important thing on a person's mind when starting a business. The part about managing it doesn't seem to come to mind. What's the point of making cash & revenue if there isn't any organization? Without a way to manage finances the business will fail before it has a chance to grow. Here's a solution: use cash flow. Why cash flow is important for any startup business?
Save some money for us! You have to spend money to make money and it's not enough just to bring revenue in. There should be enough revenue to cover all business expenses too. Those expenses are utility bills, reordering inventory, employee salary/wages, mortgage/rent payments, office/business/cleaning supplies and other business ventures. All of these expenses should be paid weekly, biweekly, monthly or whenever needed. It's best to get on a budget and make a habit of paying all business expenses.
It's all about timing. Cash isn't the only way to collect payments. In accounting its called accounts receivable but in plain English it called credit cards, debit cards or checks. Set a time limit on collecting payments say 30, 60 or 90 days. If the time limit is up make sure there's another way to get the cash or have a backup plan. This is also true for the business paying off payments to other clients. Businesses should know the time limit and there should be a backup plan in case the due date gets close.
There's more than one way to get cash. A successful business knows how to get cash in any situation. This is the backup plan mentioned in the previous paragraph. There should be more than one way to get cash and with cash flow management changing other accounts receivable into cash or use other sources like loans or investments.
Break even. Keeping up with cash flow tells us when we can expect to start making a profit. It's normal to be in the red before breaking even. It will take time to get there but a good business has an idea of the potential day where we won't be in the red anymore. Without that organization we will never know when the day will arrive.
This doesn't end with startup businesses. All businesses need cash flow to survive. There's no way around it. Keep track of cash flow.