The first four years of my entrepreneurial career were painful to say the least, by the age of 26 I had failed in 4 businesses. After leaving the corporate life in my mid 20’s in pursuit of entrepreneurial success I soon realized that to be successful in business you had to wear many different hats unlike the corporate life where you are required to wear one. I had to go from being a specialist to a generalist.
After the failure of my fourth business with less then $2000 in the bank account I decided to partner with a friend of mine to start a door to door sales company in an area south of Sydney called: Wollongong
At the time this area of Sydney did not have a specialized sales force and as a result we managed to land some big contracts, scaling from a two man operation to over 45 staff within a period of 10 months. It was crazy. It felt good to finally breakthrough and be on the other side of the equation.
But then one day it all came crashing down. What happened next would leave both myself and my partner feeling distort, angry, frustrated, sad all at the same time whilst in total disbelief that the company we worked our ass off to build was about to shut down.
I remember sitting in the office with my partner going through the weeks sales reports, making sure everything was up to date in time for our meeting with our biggest clients.
A meeting that was supposed to go for 1 hour lasted all but 5 minutes when the client walked in and delivered the fatal news that due to cash flow issues of his own, he was unable to pay our invoice for over 2 months.
At this stage we were already facing cash flow constraints at a minor level but this tipped us over the edge to a point where we considered shutting the company down.
After a long walk on the beach to cool down and hours of discussing the options available we both came to the conclusion that there was no way we could go out in this fashion, plus we had 45 other people of whom we were responsible for.
To survive we had to raise $110,000 over the next 7 days. We got our mobiles out and called every single person on our contacts list asking for favors, not easy when most of the people who know you have seen your previous failures.
Cut a long story short I can proudly say that we achieved our goal within 5 days, it was one of the most intense, stressful yet exciting experiences of my life, one that I will never forget.
It was in this experience I gained my most important business lesson yet: Cash flow is King. You hear it being mentioned so many times in articles and around the business community but now that I have gone through it, I know why it is such a major component to business success.
One saying is: “revenue is vanity, cash flow is sanity, but cash is king”.
What this means is that whilst it may look better to have large inflows of revenue from sales, the most important focus for a business is and should be cash flow. Cash is the lifeblood of your small business; if you have enough you will thrive, but without it your business may wither and die.
You can have the most amazing service or product in the world, but if you run out of cash, it won’t matter. Here are my top 5 tips on how to best manage and control your cashflow:
1) Don’t buy hardware you don’t need. This goes along with the above rule, but it’s worth specifically mentioning. I used my crappy old PC and banged up CRT monitor until I was forced to replace it because it died. You don’t need that 23" Apple Cinema Display – trust me.
2) Be brutally realistic. Always overestimate your expenses and underestimate your income. Your cash flow should always be a ‘worst-case scenario’. If you know you can stay in business when things aren’t going well, then you know you’ll be dandy if the best-case scenario happens.
3) Update your cash flow regularly. As time goes on, you’ll realise that some of your predictions about income and expenses were wrong. When this happens, update those figures to make your cash flow realistic. I’d recommend updating your cash flow weekly.
4) Cut expenses as much as possible. Have a hard look at the expenses column on your cash flow. Is there anything you can find a cheaper deal on? Anything in there that isn’t absolutely vital?
5) People don’t always pay on time. When planning your cash flow, always account for the fact that it usually takes people longer to pay you than you think. Make sure that your cash flow doesn’t depend on certain invoices being paid on time.
Interested to know, what's your No 1 tip for better cash-flow management?
*Copied from Linkedin which has been posted by Alex Pirouz on 17th April 2014 at 1.45 pm SGT