Money money money; how to get it, how to use it, how to spend it and how to collect it. It’s all about cash-flow at the end of the day isn’t it, because if you run out of money, it’s game over. It’s the number deadly sin in business.
There’s a great story of a kid selling apples to his neighbours. He decided for his summer job he’d collect apples from the local farmer (who wanted to be paid cash) and sell them to his neighbourhood and family friends. He borrows some money from his father to start, and for the first two week he sells every apple and has orders for more. Many of is customers who knew him well, said they’d hadn’t any spare change and would pay him later. By the end of the two weeks he was broke and had to go back to his dad for more money. “How’s sales?” his father asked, “Great said his son, but I’m out of money to pay the farmer.”
Simplistic–yes–but it paints an accurate picture of what happens all the time. As entrepreneurs and businesses we often mismatch sales will collection and confuse cash flow with profit–which are not the same at all.
The key to successful cash flow management is properly matching outflows with inflows and recognising that sales are produced by assets (the apples), and the more sales growth you have the more apples you’re going to need, and that means your balance sheet must grow proportionally and be funded properly. And there are only two ways to fund those assets:
We all know about equity, but debt is a funny thing. Most people consider it from a traditional point of view, but if you’re clever you will find that debt can come from many sources; namely other people, like suppliers.
Non-secured debt, paying suppliers later than collection, can help in funding your business growth. Of course, you will need to know the velocity of that growth forecast but this is one way most business fail to manage cash properly.
I’m a seasoned Start-up CEO and property entrepreneur who built a property business worth over $200 million. Since 1992, I helped start a number of large scale businesses including a bank credit department, a mortgage company, and I built the largest single-branded real estate company across five countries in Central Europe. I also developed a portfolio of shopping centers and hypermarkets in Eastern Europe, constructing over two million square feet of retail space.
Today I am involved in the entrepreneur community, trying to share what I’ve learned and I serve as a mentor for startups.
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