How To Protect Cash Flow
Okay, so you've got a great product, you're getting in front of the right audience, and now it's time to think about cash flow.
In order to keep your business afloat, it's important to protect your cash flow. This means taking steps to ensure that you have enough money coming in to cover your expenses.
In the previous articles, I compared your business to a boat and how too much overhead will sink the ship. Your products are the engine, your marketing is the fuel, and cash is the captain of the ship. No captain, no cash flow. No cash flow, no movement.
Cash flow is important for any business. You need to have a good cash flow in order to keep your business running, especially if something unexpected happens. This means you need to have enough cash in the bank to cover four to eight months of expenses, in case something goes wrong.
If suddenly a marketplace becomes inaccessible, if a fulfilment partner goes down, if your e-commerce account gets suspended, if a supplier's factory goes up in flames or if your product is recalled, you need a safety net. This will give you some breathing room so you can fix the problem without having to worry about money.
When making business decisions, it's important to consider how they will impact cash flow. For example, if you're launching a new product, you'll need to factor in the associated costs. If you're not careful, this could have a negative impact on your cash flow. For example, when you're thinking of creating a new product or service, you need to ask yourself:
- How much cash will we need to develop the product?
- After launching, what will the profit margin be? Is it enough to justify itself?
- How long until the launch is over and the product is making money?
- Will this product detract from or complement our existing products?
It's important to stay mindful of these potential issues and take steps to avoid them.
Cash flow should always be a top priority when making decisions for your business. If there's even a chance that it will be compromised, then it's better to wait and do the idea later when you have the cash. Don't let emotional attachment to an idea blind you from what's best for your business - otherwise, the boat is going to sink.
By taking steps to safeguard cash flow, you can help ensure that your business remains financially healthy. And that's good for everyone involved.