According to Dun &
Bradstreet, the biggest reason for small business failures is cash flows. They
go on to estimate that poor cash flows might have might have been the reason
for a staggering 90% of all small business failures! http://dnbsmallbusiness.com.au/Cash_Flow/
And so, as I went in
search of cash flow management best practices, I hit upon Matin Zwilling’s
article on Entrepreneur.com – “10 cash flow surprises that could kill your
start-up”.
Mr. Zwilling documents
10 key principles to avoid a nasty surprise. While I leave it upto you to read
his full article, here I am showcasing a few impressive points:
Project and document cash flows – A simple
spreadsheet based projection can serve as a template over which we can and
should see how our real life scenario is. This will help us identify
deficiencies sooner than later.
Seasonal Sales Fluctuations – Many a time, it
is just simpler to project a smooth growth of sales. But in reality, almost any
product has a seasonality involved to it. One of the most overlooked part of
cash flow projection is this seasonality, which can be best avoided if we plan and
project the same.
Faster Growth – what if our product was a
success and the demand is high? You make more. But what is less known is how to
make more with limited cash? If you are not sharp, in the excitement to grow
faster, we tend to burn all cash in production and have not much for other
important functions like bill payments and wages. There have been many such
instances of success killing a company.
New businesses don’t get normal terms – In
general one must anticipate and accept the fact that our new vendors might
demand payment faster while our new customers might demand a free trial period
or more flexible credit terms. While this could indeed be a temporary
phenomenon until vendors and customers are comfortable with your new business
and products, this is something we must account for in cash flow projections
and avoid a nasty surprise.
In essence, the truth
for startups and small businesses is simple – Cash is King. But here is a
question for you. Can we make good profits and still be broke?
You will find your
answer here - http://www.entrepreneur.com/article/229048
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