You’ve opened your doors. Customers are pouring in, and you’ve got a steady flow of orders. You start to think, “Maybe this crazy dream I had might actually work out.”
You’re doing a great job. But don’t get too carried away.
Grow too fast, and you could wind up destroying your business.
Why’s that? When you’re starting out, you have a small inventory. A customer buys a dozen widgets. You ship them out, then order another dozen from your manufacturer.
The customer is so delighted with your product they come back and order five hundred widgets. Wow! You go to your supplier and buy the widgets for your customer, then you sell them on.
Wait right there.
Before you make the order, you should ask yourself: how will I pay for this inventory? Remember, you’ve got to cover the costs of the stock until you receive payment from the customer. If your customer requires sixty day payment terms, then that’s two months you’ll be short of cash flow.
I’ve had friends who were doing an awesome job of running a start-up. But their promising business (and thus their whole lives) ended up being derailed because they failed to manage cash flow.
As your business grows, be sure to pay attention to these crucial factors:
? Growth eats cash. While launching a business, cash flow is tight. As such, big orders can do more harm than good. Always check how big orders will impact your cash flow before you accept and process them.
? Invest out of cash flow, not profit. When you’re deciding what to reinvest, look at the cash flow you have available, not your overall profit. And always be prepared for big expenses that are coming up.