Cashflow is the lifeblood of any small business and those owners who fail to juggle the balance between money in and money out do not succeed.
Even if a product or service is the best thing since sliced bread, lack of cashflow will stop a business in its tracks.
In the early days of setting up a business, considerable skill is required to ensure there is enough money to pay operational expenses, taxes, and reinvest back into the business, eg by increasing stock levels. On top of that, the owner needs to take out enough money to live on. That, in turn, becomes another juggling exercise, especially when unexpected personal expenses arise.
The key to success is to separate incoming cash into several streams. First, there needs to be a split between money required in the business and money required for personal expenses. This needs careful planning. Too often, small business owners take whatever cash is available for personal expenses, leaving insufficient funds for the business.
Funds left in the business should be separated into money to cover operational expenses, money to be set aside for taxes, and money required for reinvestment in the business to help it grow.
Liz Koh is an authorised financial adviser.
The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847. For free e-books visit moneymax.co.nz and moneymaxcoach.com