Cash is the lifeblood of any business, and it must be managed strategically: Let’s talk about cash management.
Whether you’re starting or running a business, you need to practice it because a primary cause for businesses failing is lack of money.
But if they had better cash management practices they likely would have had a better chance for survival. So let’s talk about it.
I’ve laid out some straightforward principles to help you think about this.
Say no to yourself
See, money is a mindset. And “No,” is one of the greatest words you can use when you’re thinking about it, especially to yourself.
Many of us spend based on how it makes us feel.
But that’s not cash management; that’s therapy.
And overspending doesn’t help us get better. It just breaks our bank. You’d probably be better off by getting an actually therapist than overspending.
That’s why saying no to yourself is one of the first principles you need to remember when you think about cash. That will save you from a lot of trouble as you move forward and grow.
Say yes to yourself
But you also need to know when to say yes because it does take a little investment to grow a business.
Here are a few ideas:
Books. Always find ways to buy books that will help you get smarter, better. Those are some of the cheapest and best investment that any burgeoning entrepreneur can make.
Experiments. Sometimes it just takes some money to start a project. You should spend it. Don’t go crazy. But spend as little as you can to see if an idea is viable. I’m not thinking thousands of dollars unless you have a firm conviction that you can get it back. Hundreds of dollars or less can get you further than you think.
Meals and coffees. When you meet with someone willing to help you, you should pay for that person’s fancy frothed coffee, burger, whatever. That is an investment in a relationship, and it’s just the classy thing to do when someone takes their valuable time to help you.
Save like your life depended on it
Because someday it may.
I don’t mean your personal life, but the life of your business. For instance, a pandemic may hit, and you will give thanks to God that you have a cushion to lean on.
Having a savings account full of savings is one of the best friends you can have.
But here’s the hard part to getting savings account full of cash: You need to save.
I know that’s simple. But, but—it’s not easy.
So when even before you start making money, make a plan and commitment to take a portion of the money you make, even if it’s small, and drop it into your savings account.
Then here’s the next hardest part: Don’t touch it. That’s right, let it sit there. Don’t even think about touching it. Seriously.
Invest like your Warren Buffett
Once you have a nest egg, even if it’s a thousand dollars, you can invest that cash into the stock market or bonds or something like that.
“Put that money to work,” as some say. That means you can make money off of your money.
Once it’s invested, don’t touch it for some time, like several months at least, years if possible.
I’m not going to go in-depth here, because we can start a whole blog on investing. And I don’t want to overstep since I’m not an investment advisor. If you want one of those, get a professional (ok, there’s my disclaimer).
But I will say that it’s good to keep your money in investments that are “liquid.” That means that they can be sold and converted back into cash easily and quickly. Stocks and mutual funds and bonds qualify for that.
Warren Buffet tells people to invest in an S&P index fund, which is an investment that just tracks what the general market does; and despite a few dips here or there, it has been growing for a very long time.
Invest like Jeff Bezos
I’m not saying you should spend billions of dollars because most of us don’t have that kind of bank. What I am saying is that you should invest in your business, which is exactly what Mr. Bezos did to grow Amazon, aside from shining his beautifully smooth dome. And he’s been doing pretty well. He knows by doing that (investing, not shining his head) he will grow his company
Maybe its to buy more books, or invest in a potential product or make your first hire to free yourself up to think of new ways to grow your business.
This kind of investment when you’re starting is often about freeing up your time. Software or people are usually the best solutions for that.
That way you can use that time to dream up new ideas or come up more efficient ways to do business or meet with new customers, etc.
That’s where the ROI (return on investment) comes in. Because once you spend the money on getting that new hire and you land a new client because you had the free time to and that doubles your revenue, you just grew your revenue. You saw a return on the money you invested.
Here are a few more ideas for that.
- Spend a little bit of money on designing a pdf that markets a new service line.
- Build a new product that helps your customers better.
- Hire someone that can take work off of your plate so you can find ways to grow your business.
- Hire a salesperson.
- Find a virtual assistant.
Mind your expenses and revenue
For every business, there are two sides to cash: revenue and expenses.
The former is the income your business makes—the latter what it spends to make that money. You want to try to make sure the former is higher than the latter.
Most of you know that. But what you may not realize is how much you’re spending on things you don’t need. You need to watch your expenses. Here are some questions that can help you with that.
How much salary are you paying? Is the compensation structure sound? Do you really need to pay that much salary or can you use a contractor or pay a bonus instead of a guaranteed income to your employee? Is your manufacturer giving you the best deal you can get? Are you buying too much inventory? Are you negotiating for every dime your spending? In other words, have a strategic plan for how you use your cash.
Know why you are spending what you are. Knowing that makes all the difference to business survival, or not.
The better your expense, the more you can save, invest, and grow your money and re-invest in your business. And this becomes a virtuous cycle and lifts you higher than you thought you could go.
Cash management is an active practice. You don’t just do it once. You keep on doing it. It’s ongoing.
It’s not easy being disciplined. I know. But it pays off.
It provides you the breathing room and space to take risks and grow. And you can survive when the world comes to a screeching halt.
By managing your cash, you are managing your business.
And more than that, you’re managing your destiny.