Cash Flow Issues - not enough start up money

Last week I talked about “Cash Flow for Small Businesses.”  If you missed that post, you can review it HERE.  This week’s post is “Cash Flow Issues - not enough start up money.”  One reason small business fail is that they don’t have enough money to get themselves through the start up period.  You need to properly anticipate how much money you are going to need to get your business off the ground. Learn more in this week’s blog.

When you start a new business, there are many things that will need your attention. Many of them have a price tag that goes with them.  If you don’t anticipate these costs properly, you can run short on operating cash quickly. 

As you are getting ready to open your doors, one thing that you want to get done sooner than later is your initial budget.  While the budgeting principles are the same, there will be some differences in the content that you need to be aware of. 

You are going to have start up costs, many of which will be one time or annual costs. Some of these include business licenses and permits. You may need furniture or fixtures for the business. Computers of some sort will be necessary. These are all things that take money that you need to be aware of right away.

Another thing that you have to be aware of is how cash normally flows in your type of business.  If your vendors require you to pay when you purchase from them, but your customers take 30 days or more to pay you, you are going to have funds on hand to cover that difference in timing. 

Choose vendors that provide you with quality materials and service.  Establish a working relationship with them that develops mutual trust and respect.  Use the same standard with them that you want with your customers.  If you expect to be paid right away, treat your vendors the same way.  This shows your vendors that you value them as a partner in your business.

Having a cash buffer will help you through this start up period.  Just like with personal finances, the recommended buffer to have on hand is six months of expenses.  This allows you time to get settled in and helps you with unexpected expenses and revenue fluctuations. 

This cash buffer is not just for start up.  Whenever you use these funds, you need to replenish the funds as soon as possible after you use them.  This way you have the funds available the next time you need them.  You also need to remember that as you grow, the size of your buffer also needs to grow.

A great time to evaluate your buffer fund is when you are preparing your annual budget.  While you are looking at your upcoming finances you have a good sense of how big that fund will need to be.  This is another way that you ensure that you have a well prepared budget for your business.

Part of starting a small business involves being optimistic about the future and your ability to make money.  This is a needed characteristic for a small business owner.  But to keep your business going, you need to set that optimism aside when you are doing cash projections.  You need to examine what you may need if the projections don’t come in at the levels you expect. 

There are many factors that you don’t have control over that could affect your business.  So when you are doing your cash projections, cover yourself for those factors you can’t control.  This way you will know how much money you should have on hand. 

Once you know that number, make sure you do everything you can to fund it.  Your business won’t be one of those that fail because you didn’t plan your cash.

If you know someone this post will help, please share it with them!  Then scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, sign up to receive notification emails and information on other promotions!

God Bless your week!