Questions for a new entrepreneur: Cash Flow

cash-flow

A few things came up over coffee the other day. His idea is good, his funding is solid, there are many choices. Some of the questions that don’t usually get asked:

Are you aware of your cash flow?

Often entrepreneurs are obsessed with getting that million rands deal. On the outset there is nothing with getting that deal, but is it a good deal? Just because it is a million rands deal does not necessarily mean it is a good deal.

What makes a deal a good deal:

  • Does this million rands deal give you a good profit margin;
  • Will you be paid by the client as soon as you have delivered and invoiced him; and
  • Is this deal advancing your business in the direction you want.

Businesses don’t go bankrupt because they don’t have sales, or are not profitable, they go bankrupt because they don’t have enough cash flow to pay their debts as and when they are due.

You must not allow yourself to be seduced by big deals. Sometimes it is the big deals that may sink your business.

Turnover is vanity, profit is sanity and cash flow is reality.

One of the earliest lessons I learned in business was that balance sheet and income statement are fiction, cash flow is reality.

Cash to business is like petrol to a car. You need to have enough in the tank to start the engine and you need to maintain enough in the tank to keep it running. Now the car [your business] will take you where you want to go. If you run out of gas [cash on hand ] at any point along the way, well…we all know what will happen.

The thing about a fish in the stream is that it does not care if the water is six inches deep or a foot deep. As long as it never (ever) goes to zero, it is fine.

Don’t run out of cash.

What is your zero point? What are you doing to ensure you get to keep swimming?

Cash flow is reality. 

Plan for your cash flow, it is what will keep you swimming.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s