A large portion of small business start-ups fail in year one. Many of them get something really important wrong and that is managing cash flow.
Tip 1 is to ensure you know when all of your costs are needing to be paid, so be mindful of your outgoings and when they are due.
Tip 2 is making sure they are aligned with your revenue expectations and always make sure you enforce strict terms on your invoicing.
Where possible push your bills for payment out if you need to and always make sure you have a minimum of reserves. Never take IOU’s (especially from friends and family otherwise you may as well be in the free Christmas present business).”Year one of your business will rely on one thing – cash flow.
In fact managing cash flow starts off as a very process oriented task but soon evolves into an art. Why? Well put simply there will be things outside of your control that will always impact what is coming in and out of your bank account from one week to the next.
The first thing to consider when managing cash flow is ensuring you have a grasp on what your external costs will be and when they need to be paid. In addition you need to know when your suppliers will both invoice you and when you need to ensure you pay. This is because you may need some space to pay if you do not receipt your income when you had planned.
Never leave suppliers in the lurch instead manage them effectively – don’t pay bills before you need to and always ensure you keep some cash reserves.The rule of thumb should be that you have cash reserves to cover at least six months of operational costs.
This reserve will give you breathing space when you need it – particularly over the holiday breaks where some sectors record significant drops in business. As an example the consulting business drops off between the end of November and the end of January in places such as the UK and Australia because of the extended Christmas break where in Asia it drops of during the Chinese New Year.
This is why you have to have a handle on not only your expenses and outgoings, but also your own invoicing and income. If you need to raise invoices for clients make sure the payment terms are clear. Where possible make sure it’s within seven working days and never accept terms of thirty days or longer.If you are in the retail or food business, make sure you get to grips with the seasonality of the consumer – when during the year will they buy and when might they drop off.
Once you get your business idea into the implementation phase always make sure cash flow is king (or queen as the case may be).
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