Five things to do to help your business’ cash flow
Back in 2007, as an aspiring 27-year-old entrepreneur, I remember I wanted to take my entrepreneurial journey very serious and was determined to commit my life to it.
I met with a mentor for lunch in Chicago to talk about how to prepare myself. During that 2½-hour meeting, I got tons of advice from a very successful, humble and down-to-earth businessman, Mike, about his rise as a business owner.
I consider one comment some of the best advice anyone aspiring to become an entrepreneur can ever get. He said to me, “Juan, if you are serious about starting your own company from scratch, be ready to be poor, very poor during the first few years. Any cash you make, put it back to work wisely in your business.”
Fast forward 12 years, I remember this conversation as if it was yesterday.
Today, I completely understand what Mike was saying, and the importance of having a healthy cash flow by cautiously managing your income statement and balance sheet.
When you hear the expression “cash is king” in business, it’s because without it, you are dead. So get really good at understanding finances, since you shouldn’t delegate it to anyone, especially as you are building your company.
Let’s assume you’ve started your business and now have a solid base of customers who buy your product/ services regularly. If you would like to improve your cash flow — and the odds of your company not only surviving, but thriving, for years to come — there are five things you can do.
This applies to any business; it does not matter what industry you are in, service, manufacturing, technology, construction, restaurant, etc. If you become disciplined at improving all five areas, you will have a fulfilling career as a business owner.
The first two focus points you can find in your income statement:
The more sales you have, the more revenue you generate for your company to pay for obligations, rents, mortgage, payroll and all the other expenses associated with running a business. To increase your sales, provide consistent good product/service, and build your customer base.
Be wise where you spend money the company earns. Cash is your tool, treat it with respect.
The next three points you must constantly improve are in your balance sheet: