You may have a great business model that is bound to be successful, but you won’t get to far without cash flow. To stay in business, you need to have money available to keep the business going while you wait to get paid. The truth is, a large number of small businesses fail because of poor cash flow management. Here are some things to make sure you don’t do so that you won’t have a problem.
It may seem obvious but you need to watch your spending. Many small business owners get caught up in impulse buying during the startup phase. Choose your expenditure wisely, it’s easy to spend money on things that aren’t critical when you’re first getting started. Consider the cost benefit of every expense. It is true that “it takes money to make money”, but that doesn’t mean you can’t be smart about it.
Make sure you get paid in a timely manner. Be proactive in collecting payments from your clients. Unpaid invoices are a sure-fire way of getting into a cash flow problem. Establish policies that spell out late payment penalties and collections processes. Create an internal procedure that spells out when to send the initial invoice, when payment reminders go out and when collections will become involved. Don’t be passive about getting paid or people may take advantage of you.
It would be hard to make your business a success if you didn’t have a positive attitude, but there are some places where you need to be more realistic. Be careful not to overestimate your future sales volumes. Be realistic, do the research using past revenue data from your own business or other businesses in your industry. Make sure to base your future sales estimates on objective facts and sound judgement. It may be difficult at first but as you get more experience it will become just another facet of running a successful business.