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Excerpt
Sean:
Some of the struggles with, not just entrepreneurs but, people, in general, is about cashflow. What are some of the most common cashflow problems that entrepreneurs need to avoid and or that the ordinary people who are employees would that you know, that they need to avoid as well.
Tracey:
The first thing I see, especially with entrepreneurs, but it’s certainly is prevalent on the personal side too, is just thinking, I don’t need to worry about that. That’s not my forte. I’m just going to ignore those numbers. I’m going to make money and it’s going to work out. The second is I’m going to delegate it to somebody and then I don’t need to look got it. So on the entrepreneur side, people are just saying, okay, bookkeeper, accountant, you handle that. I’m handling everything else in my business, personally, but they might get a financial planner and then just say, okay, that’s it.
Really I advocate for people to be accountable and knowledgeable about their numbers. It does not mean doing it alone. You certainly employ professionals to help you, but at the end of the day, you’ve got to be in charge of your life financially.
From a cash flow perspective, what is quite common, particularly on the entrepreneur side. that there’s a little bit of a disconnect between that P and L that we were talking about, and the sales and then the cash flow cycle depending on the business.
Let’s think about an event planning kind of business. We’re going to have a wedding. If I’m the event planner, I’m going to charge you a 50% deposit to book me before the event and then you’re going to pay me before I even execute on your wedding day. Versus other people may collect in full before they start delivering their products or services or another type, which is most common and creates the most check cast for all the challenges is, Sean, you can take my products home today and I’m going to send you an invoice and then you pay me later.
That later could be 30 days, 60 days, 90 days. So all of a sudden we’ve recorded these sales, but then the cash doesn’t come for this time, way later. We’ve got this disconnect. So when we’re thinking about cashflow, we absolutely need to think about what is the cycle of it. When does the money actually come and then does it correlate to when the money goes out. I know that from most business owners I work with, they’re not making a profit. So there’s generally not enough cash to cover all the expenses that need to be there. As you raised earlier, they’re not getting paid consistently, which is an issue for them. They’re not living up to the obligations of their family. It’s certainly not why they went into business.
People go into business to make money. And sometimes they think that it’s not going to be as much work as having a job. But that trade-off is you don’t, you have to work a lot, but you also don’t necessarily get that steady paycheck. That employment brings.
My best advice is start to understand that cashflow cycle. And when you actually start looking at the numbers regularly, you do see that there is a pattern and your business is going to be potentially different than someone else’s. So you can’t just start comparing yourself to somebody else. You’ve really got to look at it, the timing, and how things work with yours.
When you put it together, this much comes in this much. Usually there’s going to be a hole at the bottom. The earlier you know, that you’re going to have that shortfall. The more options you can brainstorm to solve the problem. Can you get a loan at the bank? Maybe you can call some of those customers who didn’t pay you for a long time and ask them to pay you. Maybe you can put in some money, you have personally. All kinds of options can be brainstormed ahead of a problem. But if you’re not knowing that it’s going to come, all of a sudden, it’s the day you got to make payroll and you don’t have the funds to do it.