This thinking has sunk more than a few aspiring entrepreneurs. Profit is great and all, but to truly have a finger on the pulse of your business, you need to look at the bigger picture via your cash flow. Cash flow is all about the money moving in and out of your enterprise. It comes down to how much dough you have in the bank or in the safe, how much money you owe, and how much money people owe you. If you can get a handle on these three things, such as with the tips below, you’ll have a healthy cash flow that will turn your lemonade stand into a boomin’ destination for the ages.
1. Keep a cash stockpile in the cleaning supply closet. Or maybe somewhere safer, such as the bank, but the point is to have back-up cash at your disposal in case worse comes to worst. Preferably enough savings to tide your business over for three to six months if customers are as scarce as feathers on a fish or if a hurricane comes through and takes your roof with it. On that note, keep a separate cash stash at home for personal finance emergencies. (P.S. Cash stash does not mean actual cash! A separate savings account or a credit union account that is physically hard to get to!)
2. Don’t sag your shelves with inventory. While volume discounts are enticing, excess inventory sucks the life blood out of budgets. Order only what you need to serve customers, and if you’re interested in a purchasing incentive, weigh it against the cost of idle products yawning in the stockroom. Just In Time Inventory System is hard, but very efficient to handle your inventory!
3. Remember that there ain’t no such thing as a free lunch. So don’t give your customers one, or a free brake pad repair, or furniture refinishing, or whatever service you’re offering, just because you don’t want to “pressure” them into paying. Always bill customers in a timely manner, and always make sure they pay you, and always keep records of both invoices and payments. If you’re trying to make money, you have to actually get the money to keep your cash flow strong!
4. Be a proud penny-pincher. Every cent you spend should be a necessary expense for the good cause of your business. If you don’t control the costs of supplies, salaries, inventory, and more with a Spartan mindset, you’re going to end up hurting your cash flow and your business’s chances of success. Be especially parsimonious if the sales are flowing in; this influx tends to trigger sloppy expenditures.
5. Tread the credit waters carefully. Keeping in line with #3, there’s a difference between treating customers well, and allowing customers to walk all over you. If you give clients the option to pay for your products/services in installments, you need some way to ensure they’re going to end up paying – before they leave with their nice new teeth. Consider implementing a credit approval process or even accepting credit cards. For a small percentage to a vendor, the latter means you’ll get the money up front and save time on collections down the road.
If you let your cash flow run its own course, you probably won’t like what you find at the end of the road. But if you keep the above tips in mind and stay in tune with all of the money coming in and out of your business, you can expect it to flourish for years to come.