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E-Myth – “Why most small businesses don’t work & what to do about it”

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Virtual CFO | Increasing Cash Flow And Profit

Business owners often have a poor understanding of why they are making money in their business, and yet they are running out of cash says virtual CFO. 50% of entrepreneurs close the doors to their business within five years, and 29% of those entrepreneurs will say that the reason why I had to close their doors was because they ran out of money. This owners often donít understand the difference between profit and cash flow in their business, and that leads to cash flow problems in business. By helping businesses understand that only the difference between profit and cash flow in their business, but how they can read income statements and profit and loss statements and use that to avoid any problems, business owners can increase their chances of succeeding in business.

One of the first things that they can understand when it comes to understanding cash flow profit in their business says virtual CFO is understanding when revenue is added to their income statement. Revenue is added to a businesses income statement as soon as itís invoiced, but just because it is on a businesses income statement doesnít mean that business got paid for it. This is one of the most common errors that businesses make when they first start out because they see a profit on the statement and yet they donít see the money in their banker. By understanding how this balance works, business owners can be better prepared to use that in order to avoid cash flow problems in their business.

Business owners should also understand how their income statement is affected when they pay off bills. Often business owners will start paying bills as soon as they have money collected from their clients. So even though their bank has no money in it, those bills the income statement earlier when those invoices arrived says virtual CFO. So by getting used to that leg. Between when invoices are received and that on the statement, and when money is paid, business owners can also avoid running into cash flow problems.

Common situation that business owners often run into and they are opening their business is when they have an increase in revenue suddenly in their business, that can create cash flow problems. Since increasing revenue is the main goal of businesses, many business owners do not understand why the cash flow problems when this happens. The reason is says virtual CFO is that even though the revenue has gone up, their expenses have on the same amount. Even though their revenue is increased, they wonít be getting paid for that revenue until later, but there expenses will be expected to be paid soon. This is what contributes to the cash crunch. If business owners can understand that thatís what will happen when they increase the revenue, they can come up with strategies ahead of time to not only overcome this problem but to avoid it altogether.

by understanding cash flow problems that they can face in business, business owners will be better able to avoid them altogether.

Industry Canada that five years, and that 29% of those entrepreneurs will say that running out of money was the reason they had to close their doors says virtual CFO. All too often entrepreneurs often misunderstand why they are making money in their business, but they are running out of cash. By increasing the financial literacy of business owners, can go a long way in helping them understand not only how to overcome cash flow problems in their business, but how to avoid them altogether. There are several strategies that business owners can learn and use daily in their business that can help them succeed.

The first strategy that business owners can use is when they are initially financing asset purchases within their business says virtual CFO. When business owners are arranging financing, they should be always thinking of the monthly payments that they will have to pay once they get the loan. While most business owners think that this includes getting the lowest interest rate they can possible, business owners should also be thinking of the length of time they have to pay that loan back. The longer the amortization period is for the loan, the lower their monthly payments are going to be and the smallest impact that itís going to have on their monthly cash flow. Business owners should always consider the longest amortization period that they can find, even if the interest rate is a bit higher. That way theyíll be able to get the assets they need in order to grow their business, but they will also be able to minimize those payments on the cash flow.

Another strategy that business owners can use in order to increase cash flow in their business, is to increase the processing period for their payroll. The reason for that says virtual CFO is if a business owner doesnít have the money in the bank in order to pay for payroll, a longer processing. Will allow the business owner to collect the money from the clients in order to cover payroll. A short process. Will not give the business owner enough time to collect money and will make a business owner have to drop on their own cash in order to pay payroll which can create its own cash flow problem.

Third strategy that business owners can use in order to increase cash in their business is virtual CFO is to increase their billing cycle. Many business owners donít invoice the clients often enough, and that can create cash flow problems because even monthly billing cycle will end up taking for more than 30 days to pay. A business owner should aim to have short billing cycles in order to start getting payment on those invoices as quickly as possible. If a business owner can bill weekly, and they will be able to increase the cash will their business to the point where they are receiving weekly payments in their business instead of most of them at the end of the month. This can go a long way in helping business owners increase cash flow in their business