Bringing money into a business and having a cash flow are two different things – do you have a positive cash flow or is your money tied up in the business?
It doesn’t matter how much money you bring in each year if you can’t take out what you need to pay for the essentials. A positive cash flow is one sign of a healthy business, but it’s also important to be consistently smart with the cash you do get to – whether it’s because you sold off some personal property at a profit or you obtained a business loan. Here are some important tips for maintaining a positive cash flow:
- Be frugal with your initial investment. When starting out with a business, it’s tempting to want to go full-steam ahead. Making purchases right away might seem like a good way to get the business moving forward, but spending too much too soon can leave you strapped in an emergency. Hold on to some of your cash and only purchase what you need – a good tip is to set aside 20 to 50 percent of that initial investment and leave it in the bank. Out of sight, out of mind – and you’ll be ready for any unplanned costs as the business gets started.
- Get paid. This seems obvious, but collecting payments from clients at a point of sale from the beginning is a smart option for maintaining a positive cash flow. Don’t hand products out without being paid up front, or if you need to offer a service over time, collect a deposit and the final payment when the service is completed. Waiting for payments from countless open invoices at the start of a business is detrimental to that positive cash flow.
- Don’t give your products away at a steep discount. While you want to entice customers to try your business early on, offering steep discounts in the hopes of selling a vast quantity is a risky move. Set your prices realistically so that all the costs are covered – do the research first! You need to know how much each service or item is worth from the start so you make a reasonable profit to accommodate costs and cash flow.
Starting a business is exciting, but simple mistakes early on could end up costing you financially. Selective spending and ensuring you get the right value for your products or services are essential in maintaining a positive cash flow for the long-term.
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