Small Business Financial Advice
Many of my acquaintances have attempted to start their own businesses over the years. At least 70% gave up within 12 months, because they failed to turn a profit. The biggest mistake most of them made was poor cash flow management.
My anecdotal observations are consistent with years of formal research. A study from U.S. Bank found that 82% of all business failures are caused by inadequate cash flow management. If you want to run a successful company, addressing financial problems is your top priority. Here is some important small business financial advice you need to review.
1) Create 24-month projections for your expenses and use irregular cash inflows to cover them
A few years ago, an entrepreneur friend of mine received a substantial windfall from a new client. She invested that money in a green screen for a side project that she didn’t need. Three months later, she was unable to make a payment for the property she was leasing.
This is a very common mistake with small business owners. They get excited when they first get money, but fail to project their long-term expenses. They blow through their cash reserves and are unable to cover their expenses down the road.
You need to project your long-term expenses and set aside cash reserves to pay them. Don’t get overly confident if you get a large sum of money, because you can’t be sure that you will be getting another large influx of cash anytime soon.
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