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Jan
03
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You’ve dreamt of it, you planned it, nursed it and dragged it hollering to the grand launch day your business that is. Are you exhausted, and well and actually ready for a rest? It is a sobering fact indeed but over seventy pc of registered businesses fail before their first anniversary of trading, (Australian Bureau of Statistics yearly Report 2004). In the bulk of cases, 66%, its issues with money flow. Money flow, or rather the absence of it, looks to be the clear number one enemy of a fledgling business. Firstly what’s money flow? Well simply put shall we say you make widgets for sale? To prepare, there had been machinery, a place to put it and some staff to help operate it. There had been insurance to pay, licenses to buy, electricity to be put on, and a telephone to take all those orders and lots more too you may be guaranteed. Now you are making your widgets, you needed to buy the raw materials, and dump the waste. You sold them, and spent tons of time responding shopper’s questions. Packing needed to be designed and made, and transport needed to be organized to get those widgets delivered. And hey it has been a quarter of tough work, but now you see you have sold over one thousand widgets. That is well before the business plan and all good news isn’t it? Add up all of the cash you have spent to date. Now look at the revenue you have received. It’s possible that the sole revenue you have received is for the initial few widgets you sold back in Jan. At the same time, all of your money has been spent making those first one thousand widgets. So where is the income? Has there been a robbery? To elucidate: A massive buyer ordered twenty widgets from you on the fifth of Jan.
On the fourth of February you sent your purchaser a statement with the invoice listed. Meanwhile the purchaser has ordered another twenty widgets which you supply in good time. Several patrons also order, and are supplied on similar terms. It’s March now and you call the first consumer to check on the progress of your Jan invoice.
The accounts payable woman is really useful and explains that their terms with you are sixty days. She asserts to keep an eye out for the check in mid Apr. The penny drops, your revenue stream will be delayed by at least eighty days. Some bills come in and all of a sudden, you are into bankruptcy, unable to pay salary or buy materials. A force that may work against you, can or work for you.