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Minding Your Own Business [This Network is not currently active and cannot accept new posts] | | Topics
16 deadly startup business blundersViews: 238
Aug 22, 2008 9:31 pm re: re: re: 16 deadly startup business blunders

Kurt Schweitzer

While No.s 3 (Underestimating the initial total Capital Investment required to get the business off the ground), 9 (Insufficient time and funds spent on Marketing & Selling your product or service), 13 (Spending too much on Equipment & Overhead), and 15 (Extending too much credit to customers) may contribute to poor cash flow, they are not what I meant.

Understanding Cash Flow means understanding the time aspects of the CASH in your business.

For example, suppose a customer uses a credit card to purchase something from you. That transaction is income today, but won't result in CASH in your checking account for 2, 3, or more days later.

Another example: Suppose you sell things on layaway. The deposit that the customer gives you is CASH today, but doesn't translate to income until the final payment is received and the purchase is finalized.

A third example (one that has really bitten me more than once!): Suppose you place an order for several items with one of your suppliers. You use your debit card to pay for it. Most of the items ship, but one is placed on backorder.

In this case the expense is incurred when you place the order, but the CASH doesn't come out of your account until the items are shipped. The worst part is that the backordered items may not be shipped for several months, and THEN the cash is pulled out of your account. Did you remember that that cash wasn't really there, or did you spend it on something else?

The cash flow challenge can be boiled down to having sufficient cash reserves to cover your daily needs, while simultaneously minimizing those reserves so that your money is working as hard for you as possible.

This is the number one issue that sinks small businesses.

Kurt Schweitzer
Urban Village Scooters

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