the business of style: do you iron your money?
Saturday, February 13, 2010
I once saw a news team interviewing people at a convention about how they stored their money. Some people opened handbags and pulled out wadded money while others had neat bills in their wallets organized from ones to hundreds. When I mentioned this at a party, a woman squealed, I iron my money! What? Yes, and wash it too! She opened her wallet and pulled out a stack of money which she proudly fanned in front of everyone, the bills waving through the air the same way shiny coiffed hair swings after an expensive hair cut.
It made an impression on me because I notice that I'm more careful about how I keep money in my wallet. Being aware of what's in your wallet is not unrelated to running a small business. It's important to iron out potential cash flow issues before you start your business and crucial to address them when you're in start-up mode. Studies show that up to 60% of small businesses fail because of cash flow problems.
Just for fun I thought I'd search twitter to see what people had to say about cash flow. Aside from all the spam messages telling me Don't buy this stock if you hate free cash flow, I came across a few people lamenting things like the only thing that would help my cash flow would be if I win the lottery! and ...just finished working on my in and out cash flow acctg and I have spent too much! I need to STOP! Or my personal favorite: Start a cash flow for yourself--play poker!
The easiest way I can think to describe cash flow is to compare it to a faucet. Imagine the Cold Water faucet as Inventory. When you buy more supplies and goods than you're selling, you're slowing your flow of cash down, the cold water moves from a nice flow to a smaller trickle. Buying supplies before you get paid from your clients can get your company into hot water.
Think of your Hot Water faucet as Accounts Receivable. If you're thinking of starting up a small business, know that when you sell to stores, or sell your service to a company, you'll be waiting 30, 60, and in this economy, often 90 days to get paid. If you count your chickens before they're hatched, ie borrow money from your reserves, confident that the money from your sales will be arriving any day, you're entering tricky territory. Accounts Receivable is the other faucet that can slow or totally turn off your flow of cash. When the hot water shuts off, you may be dependent on the trickle of cold water--and will have to scramble to sell whatever inventory you have to cover your costs until payment arrives.
In order to get a nice cash flow going, you need to understand how to balance your sales with spending (cash in/cash out). You'll also need to make sure you're getting paid in a timely manner, which sometimes is out of your control if one of your clients goes out of business or is having financial problems.
In order to understand where you stand in terms of cash flow you'll want to set up an accounting system, and it doesn't have to be fancy or cost a lot of money. If you do a little research on the web, you'll see there's a lot of different options. The Accounting Spot is offering some free downloads for small business owners that you might want to check out. There's even a spreadsheet for the small business owner who doesn't love accounting which works with Etsy, Paypal and with the Schedule C tax form. Outright also offers free online bookkeeping and tax services. For a quick idea of where you're at, you might want to use the Small Business Association's free Cash Flow Chart. Hope this inspires you to iron out potential cash flow issues. Next week we'll be talking about what to do when your cash flow stops.
Wishing you a happy Valentine's Day weekend!
Images via FFFOUND with a little commentary by me
posted by Mary Jo from TrustYourStyle at
Saturday, February 13, 2010
11 Comments:
Excellent post!
Cash flow is the most important part of any growing business.
Well written with many good points and options to choose from. Love the photographs you chose!
Happy Valentine's Day to you xo
Mary Jo ~ Great post....
My advice having run a retail, manufacturing and web business (my families business which has been established since 1954) and still going ...
My advice...
1. Pay your vendors... I came into contact with a business owner who made every excuse to not pay a vendor (she even blogged about not wanting to pay the vendor). They are your life line. No vendors no product.
2. Pay sales tax. The state will catch up with you someone WILL turn you in. (My family also has a shop in San Diego and we pay sales tax. It burns me when people cheat.)
3. Keep over head low...Trim the fat so to speak...
4. Make sure your innies are more than your outies :)
In conclusion....Out of every sale, I have an "escrow" type acct that I keep for what I owe my vendors, a sales tax payable acct (for sales tax)
* pull out the money you owe.....
* Live off what you have left...
If you need help... Get help. No shame in asking!
Contact me I have been ding this along time. I like to help Honest Hardworking Business people.
What a great post, Mary Jo!
One can never hear enough smart and concrete advice, especially in times such as these :)
As for accounting systems, my favorite is Simply Accounting -- it is my accountant's preference, but also, if offers customized areas, depending on your company. Retail, manufacturing, general accounting for small business, etc. It is also possible through this great program. The only downfall? It won't run on a MAC.
Keep the great advice coming!
Hope you're enjoying a beautiful weekend / xo
this is SO SO SO good. i hope people thinking about going out on their own will print and/or save this. they need to reread it over and over it again.
thank you for these saturday posts!
love,
katie
Awesome post. And it works for life, not just business!
I also have a confession to make: I've washed and ironed money in the past before too. I don't know what came over me. But I still have a good laugh about how I used to "launder" money. Even though I'm not cleaning it on a regular basis anymore, I do still keep it very neatly organized in my wallet: small bills to big bills, dirty one to clean ones (typically older to newer). Sometimes I think I need help.
You are AMAZING, Mary Jo. I think that anyone would be able to benefit from this information - whether they're a one-man (or woman!) operation, or an entire corporation!!
Happy, Happy Valentine's Day my love!! :)
Ooooh yet another helpful post dear! I'm the worst at this. Although my lil bi-niss is small, I often spend $ when I make it on more supplies b/c I just get so excited, yet I waste it and can't use it for bigger picture items such as a laptop, etc which would be more useful in the long run.
Thank you!!!
definitely an excellent & helpful post! i have it saved (:
bisous,
la c.
Hey Mary Jo! I'm playing catch-up here. I love this post and have to agree with some other comments in that we can apply this to life. I try to stand by the statement that it's not how much you make, but how much you save. So, being aware and meticulous about your cash flow can make all the difference!
Excellent post!!
what a great stumble onto your post! really helpfull man, thanks. We are trying to start a small buisness and looking into how it all works. Any advice about were to source info on how to operate with small amounts of cash flow say $4000 a month and changing hands each week. cheers
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