I. Businessman. (Part 13)
“I made a huge profit last year. Where the hell is it?”
This is the standard line that you will hear from any businessman, who is growing his business, expanding fast.
You are always short of cash, you never have a surplus in the bank, and before you realize that you have received a payment, it has all been paid out.
Learning No: 15
Turnover is good. Profitability is better. Cash Flow is King!
Most professionals look at how they will plan their growth based on their topline or bottomline. Very few actually think about cash flow.
The investment required to grow a business needs you to upfront chunks of money. A majority of businessmen running small & medium organizations reinvest profits from previous jobs to fund the next.
However, this usually turns out to be the Achilles Heel for business owners, as in most cases, every time you want to make a quantum leap in your company’s size, the money you need to invest increases proportionately. Finding this liquidity is one of the biggest challenges for a business.
The ability to rotate funds is something that does not come naturally to most businessmen. But those who are able to crack it, reap huge rewards from it.
One way of funding immediate requirements is using an overdraft facility from a bank. While all banks offer an overdraft facility, you would need to provide collateral to be eligible.
This is where the reserve you have built will come into play. Against a Fixed / Term Deposit of your reserve fund, every bank would be happy to provide you with the liquidity you need. There are many such products available with banks. If your need for funding is for a short period of time, this is usually the best option, because you pay interest only for the period you have used the OD facility. The rest of the time, it gains interest for you.
If an overdraft is not something you can garner, learn to play smart with money. Learn how to utilize funds available to you (excluding the buffers you have built). Plan payouts to balance pay ins. Try your best to use advances from clients to fund the payments you need to make. Plan to create working capital from the regular profits you generate.
Of course, having an investor on board can also help you tide over this.
But never forget the Golden Rule…
“The one with the Gold, makes the rules”.
An investor will want his piece of the pie. I know investors who are actively involved in running businesses they fund, tracking progress, profitability and defining the path of the organization.
As I look at it, an investor is a nicely camouflaged and packaged boss. Didn’t you start your business to get away from having one?
TO BE CONTINUED…
(This is part 13 of a series of blogs on my learnings as an entrepreneur )
Read Part 14 here