Managing Your Cash Flow Successfully
By Jon Smith, author of Smarter Business Start-Ups
In an ideal world your customers would pay you before you had to pay your suppliers, but it rarely works that way. To stay afloat, you need to manage your cash flow.
For sales to take place you will need to order products and materials, supply them to the customer, invoice them and, in many cases, wait to be paid. For this you will need a trading platform (a shop, office or website) and staff, which all costs money.
So how does it really work? You order the materials and services you need and sell them...
...on to your customer, but it is the terms you have arranged with both that will determine your cash flow. Good cash flow management enhances profitability and is a key element in ensuring that your business survives.
Your mission, quite simply, is to try and use other people’s money to cover your expenditure. If you can manage this you will be cash rich and in a very healthy position. If at all possible, obtain immediate payment from your customers before providing the product or service. If, at the same time, you can pay your suppliers over a longer period – usually 30, but sometimes 60 or 90 days – you will have a very healthy cash flow. Crack this and maybe retirement and the front cover of Time Magazine are not so far away.
On occasion, it is possible to spread your banking custom and thus your ability to borrow more. By setting up separate accounts to handle each of your routes to market, such as internet sales, mail order sales or international sales, there is the possibility of creating multiple relationships with banks that will allow more access to lending and credit. As long as the business is not overstretched,... continued on page two >