Cash flow—it can make or break any business, and that is especially true for new companies. Diving into the entrepreneurial world can be incredibly daunting if you do not know much about business finances or managing cash flow. However, it is vital that you learn to do it properly if you want your business to survive. So here are three ways that fledgeling entrepreneurs can learn to manage their cash flow to hopefully avoid financial ruin for their new companies.
Related: How to manage your cash flow
Utilize Online Tools
The internet is a bottomless coffer of information, and the vast majority of it is free. So if you are starting from Square One with your cash flow knowledge, then the internet is an excellent place to start learning. There are a lot of basic cash flow lessons available online, from overviews of what cash flow means, to more in-depth lessons on how to manage cash flow for specific types of businesses.
Once you get into the more detailed lessons regarding cash flow, it is a good idea to ensure the lessons apply to your type of business. Different types of business are affected by inflows and outflows differently, so you need to learn to manage your specific business type as efficiently as possible.
Review Your Cash Flow Statements
General lessons will only get you so far. Sometimes, the best way to learn how to manage your business’s cash flow is to start doing it. As an entrepreneur, you can always benefit from a hands-on approach to understanding your business’s financial health, and that means sitting down every day and digging into your company’s financial data.
You can gain an incredible amount of insight from your cash flow statements. It will allow you to identify unnecessary expenditures, assets and liabilities, unpaid accounts, and so on. Knowing these numbers can help you to strategise how to best improve your bottom line by trimming excess, increasing attention to high-profit accounts, and making other changes in the day-to-day inflow and outflow of your business’s money.
Start as a Consultant
If you are not already running another business, and you want to start one that will teach you how to manage cash flow, you should consider starting out as a business consultant. In an article by entrepreneurs Richard Lorenzen and Sam Ovens, the experienced consultants stated:
“Consulting is perhaps the best business for teaching new entrepreneurs to focus on cash flow. You likely aren’t going to be venture-backed as a consultant, so you are forced from day one to make money and protect your margins. As your cash flow increases and your business grows, you will be able to reinvest in your business while seeing exactly which programs are generating an ROI and which are not.”
Additionally, consulting firms have minimal expenses, as they do not require you to keep any stock on hand, and frequently can be operated without any employees—at least for a while. This helps to simplify your cash flow statements and allows you to learn valuable lessons like how to treat accounts that are paid in cash, versus accounts that are paid on credit.
Even if consulting isn’t your dream business, the lessons it teaches can be vital tools that you will utilise when beginning your next business endeavour. Plus, if you manage to find success as a consultant, the money you make with that endeavour can be reinvested into any future businesses you might start.
Having a basic knowledge of cash flow is extremely important for a new business when you are unlikely to have a CFO or financial team to handle the numbers for you. So consider these three tips and learn all you can about cash flow—it just might make the difference between entrepreneurial success and an epic failure.
Related: A guide to accounting software
