Cash Flow is King!
We all know how important cash is to our business. Here I will explain why Cash is Prince, but Cash Flow is King!
We all know that in order to be successful, you need to have more money coming in than going out. You want the wonderful feeling of having "extra" cash available after you have paid all your bills and your employees. Cash is Prince! But here is why Cash Flow is King.
Cash coming in from customers or clients, this is the lifeblood of your business. Cash can come from receipts of a loan, investor cash, and interest payments too. Wherever it comes from, it is important to the longevity of your business. This in-flow of cash will become payments to vendors, payments to employees, payments of rent, etc, etc. When the payments you make are higher than the cash coming in, you have negative cash flow. This is OK for short amounts of time or when you are just starting out. If this goes on too long you will eventually run out of money to make your payments and your business will fail. Having cash leftover once all payments are made is called positive cash flow. Positive cash flow means your business is running smoothly!
How do you make sure you get positive cash flow? You need to get organized and make a solid plan! When you fail to plan, you plan to fail. I am sure you have heard that before, right? Planning your finances is often called "budgeting". KEEP READING! Don't let that word scare you away. Let's call it a "Financial Success Roadmap" instead, shall we? That is what we all want. Financial Success! Here is how you can create one for yourself.
You need to start with where you are right now. Look at the cash and assets you have. The definition of an Asset is resources or things of value that are owned by a company as a result of company transactions. So desks, computers, vehicles, inventory, machinery, etc are included. List everything out.
Make a list of all the one-time start-up expenses that you have paid or expect to pay in the near future.
Next you need to determine monthly expected cash sources. Think about projected sales and investments. In the beginning you should try to be conservative. Be realistic so you don't end up over-extending yourself. If you are more established you can look at your sales history and make an educated guess.
Think about all the monthly expenses your business has. Really take your time to think about this. Don't forget to include quarterly tax payments, rent, advertising, web hosting, travel, and paying yourself!
Look at each of these costs objectively. Start looking for ways to tighten your spending. Figure out what your expected cash in-flow will be and then subtract out your expenses. You always want to make sure what is coming in is greater than what is going out.
If you know that the coming season is more prosperous than others, add that to your equation. Save up some of that extra money each month. Hold onto that for those months that are slower, so you will have your bills paid no matter what the season!
And there you have it, Positive Cash Flow! Cash coming in, cash going out. The key is to always know how much is coming in and how much needs to go out to keep your business going.
Need help? One of the services I provide is Financial Success Roadmaps! I can help you put it together so you can achieve Positive Cash Flow. Then you can look like the girl at the top of this blog post!