Trying to run an online business or an offline business without managing your cash flow is like trying to paddle a boat without an oar. Even if you succeed, it will be an upstream exercise guaranteed to wear you out at the long run. Cash flow is important for all types of businesses, but it is critical for small businesses. If you cannot manage your cash flow within the first year, you will likely not survive the second year.
The three key elements of your cash flow analysis include:
- Accounts receivable: This is what your customers and clients owe you.
- Accounts payable: This is what you owe your suppliers.
You must effectively manage these two if you want to navigate your online business to success. Your business will be healthier if you manage your cash flow toward the profit line. Here are a few tips to help you row your cash flow boat successfully:
Determine Your Breakeven Point: For the success of your online store, you should know when your business will become profitable, not because it will affect your cash flow but because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.
Focus on Cash Flow Management, not Profits: Use your breakeven point as a benchmark. After you reach breakeven and your business is profitable, you still need to manage your cash flow, of course. And this means you have reached another stage of your business’s life.
Maintain Some Cash Reserves: You will have cash shortfalls. Your business’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.