It does not matter whether you do your business from home or the office. You need to be sure that in addition to the other factors you are also competent in finances. How is your cash flow? Here are some basic tips by the Business 2 Community website, which budding entrepreneurs must remember in the financial management of their business.
Profit versus cash
You learned in the introductory lesson in finance or accounting that revenues are not profits, moreover, profits are not cash. Entrepreneurs who understand the difference include it in their decision making and have a better chance of success. You cannot pay your bills with profits. The basic fact is that you can have profits without any real cash.
Assets consume cash
For the company to sell products or services, it first has to buy or manufacture these products, and to purchase the equipment needed to make the products. Remember, every crown you have in your inventory or property you do not have in cash.
Working capital proves viability
Working capital is an accounting term for the balance remaining after the company deducts liabilities from current assets. Practically it is money used to pay current operating costs, including expenses. What is your balance?
Do not take receivables for granted
Receivables refer to the money that customers owe you. In other words, the accounts are not something, you can use when you need to pay off your expenses. The same with stock, it is important to understand that every crown in receivables is missing from cash.
...what if it is overdue?
Setting a deadline for payment with a customer is one thing, however, receiving these funds is another thing. What happens, if you had not receive money from your client even fifteen days after maturity? Nothing happens if it is an exception to the rule. If you have been cooperating with the customer for some time, you certainly do not want to disrupt the relationship due to a delayed payment. The average maturity of the debt is however important, it show the real willingness of the customer to meet obligations.
Final advice. When you consider the cash flow of your business, always have a written record. There is nothing worse than to process cash flow in your head. Expenses rarely overlap at the same time with payments, and finances are not something you can solve intuitively...
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