In today's business environment, money can get tight. Even big businesses can put customers onto 90-day payment cycles. Getting paid late ties up your money in other people’s pockets, and makes it more difficult for you to execute on opportunities. When I started The Honey Store, delivering New Zealand Manuka honey to a global audience, it happened to me. Luckily, I knew that one thing that would see the business through the storm. Cashflow. Cashflow. Cashflow.
Cashflow is King
In any business, cashflow is king. Your cashflow represents both the money you have made and the money you have spent. If you make sales, but don’t get paid for them, your cash is flowing in one direction: out! When onboarding new customers, I keep it cash up front. Otherwise, unless you are charging interest and late payment fees and have a rock solid credit contract, you are lending money interest-free. Unless running a bank, don't let other people run their business with your money. It’s your money, so keep it flowing in. You need to maximise your ability to execute on opportunities as they arise. To make money, you need to spend a little and save a lot. Spending more than you make will lead you into debt. Many startup owners fall victim to the 'wealth effect': seeing all of the money going through the bank makes you feel wealthy. It leads to excessive spending and all expenses paid trips for 'market research' and 'business meetings'. While you might have the money in hand, chances are there are bills to pay with it. Spending is fine once you have actually made a profit, as you will need to reduce your tax bill. Early on it's a different story. In the early stages of the game, hoard money and build up a war chest. Invest only in items that are core to your business, such as new systems that help you deal more effectively with customers, keep stock levels healthy, and fuel growth through careful investment in marketing. Spend wisely and your money will pay dividends for years to come.
Too Much Profit Can Be Bad
Keep the cashflow coming in, spend it on growth, and balance your books so that the cashflow and revenue keep growing while taxable profit stays within sensible bounds. If you're making too much profit, you will be taxed on it. Talk to your accountant on ways to reduce your tax obligations by investing in business growth. Keep building your profit margins on your products while you grow. Bringing down the unit cost and increasing the margin demonstrates core value and gives investors confidence. Kathmandu’s founder, Jan Cameron, was once quoted to me as saying ‘Give me a product that I sell for half price, and still triple my money!” Make this your goal. You will need it to stay in business. The main goal for your business should be to grow using profits and retained earnings. Adding value per share shows your investors that you are worth backing. People appreciate profit and it looks good to future investors. Consider raising capital to get money in the door. In order to keep the money flowing in you must show your investors that you can generate a profit and pay their dividends. Good dividends will have them lining up at your door. Remember, cashflow is king. During the rocky ride to the top, you will be in up to your neck, working hard to make what you believe in a success. As times go on, the sales will get bigger, the profits will increase and with persistence you will find yourself with a good business on a stable foundation. At the later stages, as you approach maturity, you will still find that cashflow is your number one asset. Having money coming in is the number one solution to most of your problems in business, so if you are waiting to perfect your product before launching it, don't! It will never be perfect! Put your product through its paces with your customers as soon as you can, make some sales and get that cash a flowing!
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