Without cash flow, you can look forward to surprises and struggle.
Is your start-up having a cash flow a problem
Did you start your enterprise without enough cash on hand? Well, you made a mistake, join the club. Cash is king, and this is never truer than when you are in business. If you have a strong cash flow good progress can always be made. Without it everyone will run a million miles so fast you won’t even see the dust.
A solid understanding of cash flow is incredibly important to smaller businesses and non-profit’s success. According to various studies, over 80% of business failures are attributed to cash flow problems.
It is important to understand that is is too hard trying to start an grow a business on sales alone, unless you;
- Start up with a big customer.
- Already have a substantial following.
- Have a very high-profit margin.
Cash flow refers to the revenues from all sources your business will generate, and collect, compared to the money it will have to pay out at any point in time.
A solid understanding of cash flow is incredibly important to smaller businesses and non-profit’s success. According to various studies, over 80% of failures are attributed to cash flow issues.
If you run into cash flow problems, you could be out of business, no matter how profitable you are or, how much backing you might have. If you can’t see the answers, seek advice as soon as possible.
“The more working capital is put into the business, the faster you’ll be able to grow and the more profitable your business can become in the future”. Peter Sergeant
You might think you have a brilliant idea for a new business, which will give you more income than you have ever dreamt of and the freedom that goes with it. So, in your rush to set up in your business venture with high expectations. Stop! Never go where Angels fear to tread your aspirations are ill founded is there is not adequate working capital.
Initially, you will be excited and work as hard as you physically can to make the business work. But without working capital you could be in real trouble is expected sales don’t materialise.
Hopefully, some income will start trickling in and increase month by month and that is good, but if there is a shortfall what will you do. The hardest thing in the world is to go cap in hand to an arrogant banker at the last minute.
If you had money saved, this will be dwindling away, you will be increasing the balances on your credit cards, borrowing from family and friends, taking out personal loans and so on, trying in vain to keep your dream alive.
Within a short period of time, you could be stressing about the money situation, or rather the lack of it. Having sleepless nights, potentially arguing with your loved ones and generally losing the spark of excitement and enthusiasm for running your own business suddenly comes home to roost like the chickens every night. This goes on until there is a loud band, a puff of pale blue smoke and your business disappears into the small business graveyard. Never to be seen again, dreams shattered, and what maybe worse, relationships shattered.
The biggest mistake they can make you can make is usually at the start-up point. Before you started the business, you failed to calculate the amount of money you would need to pay for your living and business expenses whilst the business was getting going. The real amount of working capital or finance you would need to get the business up and running well.
According to most research, the biggest reason for business failure is cash flow. I contend, that the biggest reason is not cash flow, it is the lack of planning prior to commencing the business to determine the amount of money and resources needed to fund the business start-up. Your planning must include a Business model, a Business Plan, Value Chain and Budget as a minimum.
When your budget is put together to determine what the working capital requirements are for the business, you will know exactly how much money you need and when you will need it. In this way, you can take the necessary steps to ensure that you have sufficient funds to meet the bills. For some people, the reality of exactly how much money you need to get the business up and running will mean that you may need to delay starting and work a while longer to build up the funds to ensure your success.
Get it right and your stress over the financial position will be minimised, your excitement and enthusiasm will be maintained and your relationships with your loved ones won’t suffer.
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Sound like a lot of work? Yes, it is and if you have no experience. We recommend you invest some of your limited cash reserves in obtaining the right advice. The alternative is not to start the business and save your money.
The time and money invested in obtaining advice to determine the working capital required to start a business is worth every penny and more. It is certainly should not be considered a ‘cost’, but an investment in peace of mind and future success.
Take the time to work out the numbers and make sure that your business will be in the small percentage of businesses which not only survives but flourishes into the future.
In the meantime, focus on making sales first, raising capital second. And a good rule of thumb is that you want to ‘avoid surprises’ for your investor.