You probably know someone who has never had a business of their own but thinks that simply having a business means money are pouring in your accounts. They’ll say things like, “But of course, you can get a check because you’re the one who can write it off”. To this I say: Really?!
Such people cannot grasp the idea that having a business is the trickiest thing given that you have to balance the act of cash management. This is why, among serious entrepreneurs and business owners, money is just as important as air. Writing things off doesn’t actually mean that free money are heading your way.
You’ve probably heard your professors in Business School telling you that cash is king. This is the creed that lays the foundation of any prosperous company.
Unlike my colleagues, I actually paid extreme attention during classes when professors were trying to make us understand that simple creed but, it was only when I started my first business when I finally realised that money is not king but rather air. No money means the end of your company.
So what happens when you realize and know that money is actually running out? Do you avoid or delay addressing this aspect? Probably. Ignorance is bliss. Well, at least until ignorance turns into a seven-figure sum that you have to pay by the end of the month. Then ignorance will send you some signals to the stomach and you’ll want to have a wastepaper basket close.
Related: How to Ensure a Constant Cash Flow
So I learned the hard way how difficult it is to maintain the flow of cash in your bank accounts. Here’s what you’ll have to do:
1. Not a day should go by without checking the cash amount in your account. You need to know this aspect and I cannot stress that enough.
2. Now you know the amount of cash you have in the account. Move on and subtract the payments that are already in the mail. So be nice to the postman who’s gonna deliver those cash envelopes to their rightful owners.
3. Determine your burn rate. What is the burn rate you might ask? Well, the burn rate refers to the costs that you have to pay on a monthly basis to ensure the survival of your company. Make sure this number is as low as possible. Use a calendar and map out your monthly expenses.
4. You should never assume that you will receive money when you think you will. You should add the very least a two-week buffer to the your estimated period.
5. Investing interest-free in your business when you are building it from the ground up is essential. Growing organically will definitely be one of those aspects that will bring additional benefits in the long run.
6. It may so happen that at times, you may need to borrow some cash to ensure the survival of your company. Speak face-to-face with a lender with your file before your eyes. Never take anything for granted, therefore you might need a good relationship one day.
7. Ask for as much terms as possible on everything. Most definitely, make sure you stretch out your money to build your business and hold on to it for as long as possible.
8. Also, you should ask your clients for prepayment and retainers and use their money to build your business.
9. There’s a reason business owners and entrepreneurs use the term cash flow. The cash resembles a tide, at times it may come in or go out. Don’t panic because it goes out and understand how and when it will come back in. Being conservative may avoid you from headaches in the future. Just imagine that some inevitable things that are out of your control require some funds. What do you do then?
In today’s business environment, cash has become extremely personal, so, you will always hear business owners talking 24/7 about it. Being short on cash may take its tole on an entrepreneur and make him or her feel overwhelmed. I’ve been through this and I wouldn’t wish this for my worst enemy.
A shortage of cash flow will never let a business owner actually work on the business and focus on the things that will fortify the status of your business. Entrepreneurs will always have the sensation of fear in the back of their heads and that’s never a good thing.
Therefore, make sure you are not ignoring your finances and apply these tips to your business and you’ll see a difference right away.
