Money Challenges New Business Owners: Cash Flow

*If you haven't checked out the previous posts about money challenges as a business owner, be sure to read about pricing your product or service and collecting payment from customers.

The third challenge business owners face is cash flow.

Cash flow can be a challenge for any business, but especially new business owners.  You simply do not have much to work with. 

If you are just starting or thinking about starting. We suggest that you decide on how much you are going to invest, deposit the funds into your new business account and then work inside of those lines. 

If your business is currently operating, pick up where your business is currently at. If you have started a business and are bleeding money, then take the steps listed above. Decide how much you are going to invest today and make it work. 

Once you make that decision – DO NOT get to the end of your funds and say "I am going to deposit just a little more," then 2 months pass and you need a little more.  It will suck you dry.  You need to commit to making your business work with the funds you have!

We caution you to stay away from using a credit card to get started. Our experience with using a credit card to get your business started is that you are unable to pay off the balance monthly, creating a vicious cycle.  You are swiping away; the balance goes up yet you don’t want to look at because it is scary and so you just charge more.  You see where we're going with this?

There is often a disconnect with credit cards.  You are spending but don’t realize how much because it's not coming from your checking account.  You may say – but I want the points.  The points are never worth losing your business.

Now that you know how much you have to spend, review the list of expenses needed to get started for the first 6 months.  6 months may not be long enough.  Know your industry, so you can make sure that you have enough funds to get started.  If you have enough for 4 months, you have 2 choices.

1.       Wait until you have 6 months’ worth before you start OR

2.       Take a look at your expenses and see if you can cut back.

Do not start a business if you do not have enough money, rarely do they succeed.

Honestly, as a new business owner you are going to have to be crafty and incredibly creative to hold onto your cash.  You need to keep things as simple as possible. 

For example: You may feel that you need accounting software to keep everything straight, but we would suggest you save your cash and use an excel sheet to start. 

We all can find things to spend money on, but you have to make every dollar stretch as far as you can when starting a business.

We strongly suggest speaking to an accountant to review your numbers.  They are going to be able to tell you if you are missing any expenses or if your estimated amounts are correct. They are also a great sounding board.  They have helped hundreds of businesses and can share their experiences with you and give you good feedback.

So, now you are clear on how much money you have to start your business with, you are aware of your monthly expenses, your products/services are priced well, and you have the fastest method of getting paid.  We have one more item that still needs to be addressed.

It usually takes longer than you expect to get your product/service off of the ground.  This messes with your cash flow.  But, now that you know this, you can plan for it.  If we go back to when you were estimating your expenses to get started, you should consider adding some additional months if they are needed.

For example:   If you initially expected that you will start producing income in 6 months, we would estimate for 9 months instead.  The worst case scenario is that we're wrong and you have money flowing before then.

Once you consider the price for your product or service, how you will collect payments and honestly evaluate your cash flow, you will be set up for success moving forward with your business venture!