Cash flow- Cash is King

Cash flow- Cash is King

This is one of the the concepts that beginners get wrong. They think of of profits that is if I buy something for a pound and sell it for two pounds then have made 100% profit.

Therefore if I sell one million of them I have made a million. What could be easier.? I have been asked by people how much profit I make on things I have never been asked about how much money I have actually made.Their idea of profits seems to be unconnected with anything else. They will point to one item or one piece of work and say. How much profit did you make on that?

They obvious have no idea that it is entirely lined ot your productivity over year and one ite i isolation mean nothing. each year as the year progresses you can only guess on previous performance.

They understand that you can sell and not get paid but they do not think about not getting paid quickly enough. Dragons Den on television show up how people think in business particularly when they are beginners.

They are focusing on the idea and manufacturing the idea. They then want more money to building more of them or the more savvy how to market it.

Selling and marketing seems to be an after thought. They know they have to do it but it seems to comes a long way after the idea and the maing of the product. They sometimes seems to think that they cannot proceed any further util they have a warehouse full of these products of a container load at the depot.

You can spot immediately when the pitch is going well usually the presenter will say something like I have sold a hundred of these units in the last year and I now have an order for 10,000 from Marks and Spencer or Tesco. It then dawns on the panel that ! These things can be sold " These things can be sold before they have been manufactured because we have an advance order.

They then know that the money they put in will not be wasted on marketing a product that has not been proven. It has been proven all they need is to build more of them to order.The cash flow is then a good prospect.

The biggest problem most self employed people have is setting aside enough money for their taxes both income and vat. It is easy to finance the business by putting off paying the tax to the last moment or at all.

Each day first thing in the morning I check my cash flow. i look at both my business and personal account to see my current balances.I know how my bills are going as they are paid on a regular basis so my balances are a good indication as to how healthy the business is.

I have overdraft limits on all my accounts and my credit card so between the three of them I have a considerable amount of credit available. The idea is always to be in the black but I have the back up if I hit a tough patch. If I am constantly things are not going in the red which has not happened I will know well. I will be able to use the credit facilities in the short term and then have time to reorganise affairs to get back into a positive cash flow

In my office I have traditionally just used bills delivered and paid for as an indication how well I am going. This is a reflection of the health of the business. If the bills are delivered then I am busy . If they are paid for then the cash is flowing in.

The only other indication which can easily be hidden is work in progress. WIP is the best place to look for increasing profits. if you are holding too much unbilled work you are eating into your profits.

If you squeeze you WIP it is a great p[lace to crease profits. It is work you have for clients who ware ready willing and able to pay you. Your job is to finish the job and bill them.


I now take money on account of costs and bill them regularly before doing any more work. It means that the clients feel happier because they know how things are going and they do not have a large bill to deal with at the end of the transaction.

Complaints can arise out of billing procedures and the amount of the bill. if they have been billed as they go along and they have paid you have cut down the potential area of complaint considerably. All you then have to do is a good job.

I had someone ask me the other day about a tenanted property Do you think we should consdier putting the rent up every year. I said I think about it every day.

It is the same with cash flow You have to be thinking about it and acting upon it every day all day