Whether or not you work out of a home office, you will always want to ensure that your cash flow management is solid and highly competent. Ensuring that cash flow is adequate is one of the greatest duties of any startup entrepreneur who wants to run a successful business. The worst thing that can happen to any business is that it manages its cash flow very poorly. Here are five cash flow management tips for startup entrepreneurs to take notice of.
First of all, profits are not cash. They are merely accounting. Startup entrepreneurs who understand this will succeed. Accounting can be a lot trickier than you might expect. Further, it is impossible to pay bills with just profits. For example, if a startup entrepreneur pays his bills while his customers don’t, it will be problematic. The fact remains that profits can be made without making any real money.
There’s nothing worse than working out cash flow in your head. It’s just not intuitive, and, furthermore, making a sale doesn’t even always mean that one has the money. At the same time, incurring an expense may not really mean that your business has already paid for it. Inventory is typically purchased, paid for, and then stored until it turns into cost of sales.
Prior to being able to sell products, a business has to either purchase or build these products. Even when you place said products on the proverbial shelves and wait until they’re sold, you still have to make sure the suppliers are paid. Remember that each dollar you have in inventory is actually a dollar you do not have in cash.
Working capital is the accounting term for what a business has left over after one has subtracted present liabilities from present assets. In a practical sense, this is actually money in the bank that’s utilized to pay the business’s running costs as well as expenses.
Accounts receivable is a reference to the money that your customers owe you. In other words, and this is highly important, accounts receivable is not something you can count on to be able to pay expenses. It’s best to remember that each dollar in accounts receivable is actually a dollar less in cash. This is a great way to look at cash planning if you’re a startup entrepreneur.
These are the five best cash flow management tips for startup entrepreneurs. Being a startup entrepreneur does not necessarily mean that you are also adept at handling the ins and outs of successfully running a business. If you fail to watch cash flow management, then you will also fail at running your business.