Starting a company and turning a new company into a profitable company are two entirely different feats. Starting a company is easy. All you need to do from a practical standpoint is incorporate the entity for a few hundred dollars and that’s it. You have a company. Now, taking that company and turning it into a profitable, cash-strong company is an entirely different feat altogether.
Now, the unfortunate truth is that most companies fail in between these two periods. It is common knowledge that nearly 70% of companies will fail during the first three years of operations. This begs the question – why do companies fail? The most basic answer to this universal question is money. When a company spends more in expenses than it makes in revenue on a monthly basis, it will eventually go bankrupt. Thus, cash flow, and learning how to efficiently manage cash flow, is an essential element of building a long-standing, successful company. Ac Repair Florida is a company that had a rough start but was able to overcome the hardships and has since become a steady business.
The Trap
Optimism is a two-edged sword. On the one hand, every entrepreneur and business owner must have an optimistic nature. It’s the only way to survive. If you believe you are doomed to fail, then you most likely will. During the initial phase of a company, most entrepreneurs are overly optimistic about their company’s future. This can lead to problems.
If you are overly optimistic about the future of your company, and if you believe that you will make significant money in the near future, it can lead to a very skewed perspective. This is the trap that every entrepreneur faces. On the one hand you must be optimistic and believing for the best. However, when it comes to cash flow, you should be utterly practical and conservative. How do you do this practically?
Office Space
Working out of a spare bedroom or garage is not a bad idea. It will save you hundreds, if not thousands of dollars per month, and that added cash flow in the early stage of a company can be significant. Furthermore, you do not want to commit to long-term leases when your financial future is largely unknown. Don’t calculate business cash advance possibilities. Instead, wait until you have a steady track record of 12 or more months of revenue before you commit to a large lease.
Equipment
It can be very tempting to buy the latest technology. Don’t do it. In the early stages of the company, make sure to use the lowest level of technology that is effective. If your computer is 4 years old, and you really want a new one, but it still does the job, keep it! Don’t upgrade until it comes out of excess cash flow and not out of operating capital.
Salaries
Salaries are typically the largest overhead in a company. Part of the life of an entrepreneur is long hours. If you have to put in a few extra hours on the weekends to prevent hiring a part-time employee, it may be the best decision in the early stage of the company. You may be applying for a first time home buyers loan, and the added savings can help tremendously.
Remember, if you are building a real company, your goal is long-term. Efficiently managing cash flow is an essential element to taking a new company and transforming it into a long-standing, profitable company.
