Wise Wednesdays - Cash Flow is King (or Queen)

If poor market research is the number one reason why businesses fail to get off the ground then poor cash flow management kills more businesses once they are off the ground.

Simply put, cash flow is the actually money you receive in sales less the actual expenses for each month. The key word is actual. Not what you are owed. Not what you will pay off. But what is going out of your pocket and what is going in your pocket for that month.

This is crucial. For example if you know your basic living expenses are $2,000 a month then you know that is the minimum you need to make a profit a month to continue (don’t forget you pay taxes on any profit you make even if you pay yourself).

Otherwise what happens to many entrepreneurs is they start to panic after their third month when they realize they can’t cover their basic living expenses.

A cash flow allows you to see when it’s best to transition from working on your business part time to making the leap to full time. The cash flow can also help you identify future downturns in profit so you can prepare yourself.

In the end having a sustainable business is what matters. A cash flow allows you to see if this is possible.

Cheers,

Dominik