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negative Cash flow for 3,6,9,12 months now - why should i care?

6/9/2014

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Cash flow in any business is king! And this is one of the real challenges facing small businesses and start-ups.

Cash-flow is simple: Money in minus money out. If your cash-flow is positive your business lives, if your cash-flow is negative your business dies. Simple as that!  And if you play your cards right, some of that cash flows into your own pocket as a return for your investment in your business. So, knowing where your money comes from, and most importantly where it goes is the key to your financial success.

Which brings me to write this story - Negative cash flow for 3,6,9,12 months now - Why should I care?


Sitting there on your favourite chair after so many sleepless nights
staring at your computer screen for a long stretches of time because the first ten emails each day read: Hi, we note that your account is in arrears - please pay as soon as possible to avoid further action... scratching your head may be twenty times... rent is not paid, the kids school fees are not paid, internet and power at home are disconnected... staring at your phone hoping that a miracle will jump out of it, but your suppliers are constantly calling you to follow up with their payments - so you turn off your phone and tell your staff; "if anyone calls for me - tell them I am not here" - at this point you are stressed!

T
hen it is time for your 3:30pm meeting with the bank loan officer because you have had few bounced cheques in the last two weeks and the loan repayment is behind - your legs and your bottom really need that walk and stretch because you know your legs form dangerous blood clots when you don't move them and that could lead to wrecking your entire nervous system, and some other painful reaction throughout your body such as migraines, leg pain, shoulder pain, back pain and so forth.

Anyway, the point?  Worrying and stressing about your small business cash flow for a long period of time can have its negative  impact on:
  • Your health
  • Your well-being, and even to
  • Your life
  • Your family
  • Your children
  • Your friends, and
  • Your own business

Then you question yourself over and over again (feeling guilty I imagine) where did all the sales money go to in the last 3,6,9,12 months
; then BANG - let there be light... just bought a $17,000 new car because you wanted to look well and cool like your business friend Josh, gave $5,000 to aunty Lose's funeral, gave $2,000 as gift to cousin Sione's wedding, bought your 4 kids the latest Apple Iphone $950 each which they do not really need, took 6 friends for dinner/drinks at a top restaurant because you wanted to impress them that your business is doing well - then you recover from the party of the night before only to get hit with the reality of $3,500 bill. Wow, you are a real spender. Then the question is: Were all these personal expenses factored into your business cash flow forecast?

T
his is not limited to... but ask yourself these sort of questions.

Then you check
your latest bank balance it is on a red tape mode, your accounts receivable ledger is not balanced with 85% of the outstanding debtors are sitting on 365days, 120days, 90days, and 60days,  the invoices for the completed jobs from the last three months have not being prepared.  You are just too busy to check anything, and with five other local organisation committees that you are involved with (in which you are also too busy to attend all of these committee weekly meetings - so you eventually become an ineffective member to most of them), and there is simply no quality time for you to spend on looking into your own business activities and assessing it regularly.

Sounds familiar? So - why should I care?

Then the last word is actually your stuff. Stuff is a general term
that refers to stuff we think we really need. So you should learn to convince yourself that you should get stuff only from your cash flow - NOT USING CREDIT. If you want more stuff you need to increase your cash flow to get it. You will never get to Financial Independence carrying Bad Debt!

So - this story is simply trying to paint a picture of an average small business owner's challenge that:
  • Money coming in is spent elsewhere, and not being re-invested back into the business operations
  • Money to collect from debtors is too slow
  • Completed jobs are not being invoiced
  • Money going out is not on the cash flow and much higher than the money coming in
  • Expenses too high
  • Cash flow is negative
  • Business is in trouble
Remember, the biggest sale in the world does not mean anything - until you get paid.

To see tips on how to help you ease off that pain and stress, check it out here:





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    Passionate about entrepreneurship, small business and start-ups. Love tackling the issues and challenges that matter and helpful to small business people.

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