Cash Flow. Boy, what a bother.
Trying to manage cash flow when the cash doesn't come in the door in a
consistent manner is one of the many things we, as entrepreneurs and self
employed business people, must deal. Certainly keeping back a certain
amount of money we receive as deposits is one way to make sure the money is
there when we need it. By creating our own reserve we insure the bills will
get paid. Another way most of us insure cash flow is to borrow the money;
usually in the form of a line of credit against the business. Quite often
this line is guaranteed personally by the owner. What fun. So, when
the cash is flowing in we pay the credit line off. Either the whole
amount or the minimum interest payment. The problem with this is, of
course, the cost of the money. Depending on how the loan, and that's what
a line of credit is, is secured the interest can get to nose-bleed levels very
quickly. Especially if it's attached to a credit card. So, we need
to make sure we aren't paying so much in interest we are loosing money even
when we borrow it. Crazy, huh? Work with your banker or credit
adviser to discover what would be best for you and your business. Usually
credit cards are not the way to go. The cost of money can exceed 20% per
annum and run thousands of dollars or more a year. Money that will never,
ever, get to your bottom line. Do you own your building? Yes, that
would be too easy, wouldn't it? If not, and you rent, are there assets in
the business against which a loan could be secured? Try to figure out how
you can prove the cash will be there when the bill comes due on the line of
credit. Rather than secure the loan personally try securing the loan
through the assets of the company. Borrowing money to run your business
is still a sound business decision. You just want to make sure you spend
the money on the business. Don't spend those deposits on anything but the
item ordered and get those client invoices paid before delivery. Then you
will see an easier time with cash flow.
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