Cents and Sensibility: Managing Cash Flow Like a Boss

propergirl.com

Have you always dreamed of being your own boss? Do you have a side hustle you want to turn into something more? You aren't alone. Making your own money doing what you love is a part of the American dream. However, maintaining cash flow can be a real challenge. Even if you have a solid business idea and good product or service, when you are your own boss, revenue is not guaranteed. You can avoid the cash flow crunch by learning to manage your cash flow properly.

UNDERSTANDING PROFITABILITY 

First off, keep in mind that it could take some time for your business model to turn profitable. Even if you are running your company entirely online and have absolutely minimal operating expenses, it is still going to take time until you start to see any cash flow from your investments. While technically you are profitable as soon as you earn more income from your endeavors than you spend on creating them, actually being profitable is a different story altogether. "There's profit and then there's profit," explains Suzanne Kearns for QuickBooks. "The phrase 'ramen profitable' describes a business owner who is barely making enough to earn a small salary and pay living expenses. Obviously, this shouldn't be your goal. Instead, you'll want to pass that point to get to what's called 'corporate profitability,' which is when you have remaining capital after all expenses and salaries have been paid."

BEGGING AND BORROWING 

If you are like most business owners, you are likely going to start your endeavor by spending your savings or borrowing. The latter could involve using a credit card to pay for raw materials, taking out a loan to purchase equipment or rent a space. If you are particularly ready to jump into the market, you might even be able to attract venture capital or private equity -- that is, individuals who are willing to give you money today for a piece of the action later. Whatever the case may be, you need to be able to access funds to get your business off the ground, but the terms may not always be ideal. However, it is important that you don't take on more debt than you can handle. Keep in mind that you also need to be able to make the payments or recoup your rainy day fund.

PLANNING AHEAD 

Don't blow your entire budget. Clients come and go – sometimes all at once. You'll need money to cover your work for them until you receive their payments or to cover your overhead until you get new clients. Plus, even with regular clients who pay on time, you are going to have unexpected expenses – someone who forgets to pay, or a necessary car repair. Without enough cash to cover these things, you are going to have to find the money somewhere else – often at less advantageous terms, like a high-rate credit card. This might seem okay, but what happens when the credit runs out?

CENTS SENSIBLE 

In general, managing cash flow like a boss starts with being "cents sensible." This means that you don't spend as much as you earn if you can avoid it. You need to have some money left over to cover your overhead until the money comes rolling in, as well as something left aside for a rainy day. Moreover, make sure that any money you spend on your business actually contributes value to your endeavor. For example, buying fancy business cards that cost 10 times as much as regular ones may make you look successful, but they aren't necessary when you are first getting started. Put your money where it matters -- the core functions of your actual business. Yes, you may need a laptop. No, you don't need a portable super-computer. Prioritize.