Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cashflow matters most.
It’s the most important thing to any business or investment.
There are only five levers you can pull to increase cashflow.
- Sell More: No business succeeds without sales. At times it can feel like your product is so good it will sell itself. This is not true. You must put the offers in place correctly and set up payment collection.
- Spend Less: The amount of personal and business waste in the modern age is disgusting. You should routinely go through your expenses and question if you really need the software you are paying for. Audit these every month.
- Reduce Accounts Receivable Days: Tighten up the terms that you offer or better, offer no terms. In other words, your product or service must be paid for upfront before any work is done.
- Reduce Inventory Days: Hold inventory for the shortest amount of time possible. Only order what will actually sell based on the trends of your business or industry. This is for physical product businesses.
- Increase Accounts Payable Days: Negotiate better terms with your suppliers. Shoot for Net 30+. This lets you hold on to your cash longer, increasing your cashflow.
Many companies (and people for that matter) are asset-rich and cash poor.
You want to be both asset-rich and cash rich. It starts with building the cashflow principles above into any venture you take part in.