As an entrepreneur, the biggest challenge that one faces, or is going to face is managing cash flow for his/her company. The true test of an entrepreneur comes when his company runs out of fuel. The true test of an entrepreneur is if he can manage to make pay roll on time, pay his vendors on time and still have some in the bank for future growth.
This is something that I have seen very closely at Reado.com. It is a constant struggle. Every time we have to write a new cheque, it sends a shiver down the spine, because you don’t know how you will manage the funds to honor the cheque. And if an entrepreneur cannot manage his cash flow, he will never be able to run his business.
As an entrepreneur, it is very important to identify which investments will eventually result in a positive cash flow for his organisation. If you are an entrepreneur, you have to always evaluate every investment in these terms. Because you do not have the liberty you once had when you were working in a corporate organisation. When you used to take business trips for granted. When the top of the line printer for the office was a given. When business lunches were just a part of the job, and office supplies were your rights. When you run a business, all these expenses matter. Every rupee matters.
My suggestion: do not delegate cash flow management to your accountant. It is a hands-on process that every entrepreneur needs to be actively involved in during the start-up phase, or maybe even beyond that. At the start of the month, make a schedule of all payments that need to be made against the payments you are expecting to come in. Always be on the lookout for clients whose payment structure is solid, and can work on less credit period. And most importantly, increase your account receivables. You need to make sales in order to receive payments in the near future.
Whenever I make my schedule, I don’t only look at the payments that need to be recovered in the coming 30 days. I also look at the possible sales that I can make in the coming 30 days, which can be included in the next schedule.
Suggested Reading/Audiobooks – Rich Dad Poor Dad