Planning The Growth Of Small Start-Up Company

A Start-up Needs A Lot Of Planning

     If you are planning on starting a small business, you probably already have an idea about what you want to sell and may even have some idea as to how to make money doing it. However, did you know that most businesses fail because of poor cash flow management? 

If you think about it - that makes sense. This is because you need cash coming in to pay bills, and you also need money to buy new inventory to keep making sales.

            

The number one mistake that people make when starting a company is confusing cash flow with sales. 

Just because you have sales, doesn’t mean that you have cash flow. A few of the reasons that you may have sales and no cash flow are because people may be paying you on credit, your cost of sale may be too high, or your cost per unit may not yield you enough profit.

That being said, here are some ways that you can expand your business and keep a cash flow that will allow you to meet and exceed your expenses:

1. Keep your overhead as low as possible. Many people make the mistake of renting expensive commercial space because they think it gives them more credibility. However, if your rent is eating up all of your profits, you will soon be out of business.

2. Pay salespeople on commission and keep other workers part-time. If you hire a salesperson, never pay them a salary because they won’t be motivated to sell anything. Salaries for unproductive employees eat up profits and will also take all of your cash flow. As well, you might only need part-time help instead of full-time. If any job can be done in twenty hours or less, hire part-time or else get contracted labor. Remember, payroll is usually the biggest expense of running a business.

3. Don’t extend anyone credit. Don’t take on business from anyone who wants to pay you thirty days from now.  They are just using your cash flow to finance their own project. Believe it when we say, if this customer owes money to anyone, you will be last on the list to be paid. Just like you, they will pay their rent, utilities and payroll before they pay you anything. This is why they have asked for credit in the first place.

4. Pay your own bills on time. Always wait as long as you can to pay any bills, but never pay penalty fees if you don’t have to do so. You are just throwing money away if you pay everything late.

5. Don’t buy things on credit. When you pay bills with your credit card, you get a false sense of what your cash flow is really like. When the credit card bill comes at the end of the month, many people forget to account for it and wind up with less cash flow for the next month. Charging next month’s expenses only leaves you further behind and if there are interest payments, you are throwing hard-earned money right down the drain. 

See also: writeyourselfrich.net