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

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Virtual CFO | Managing Cash Flow

Business owners often have poor understanding of why the are making money in their business, they are running out of cash says virtual CFO. Industry can percent of all businesses close their businesses within five years, and percent of those failed businesses will say they ran out of cash. Helping business owners understand basic business finances, they can increase the odds of succeeding in business because they will either be able to manage cash flow problems, or avoid cash flow problems altogether.

The first in the business owner learn in order to help understand business finances is revenue is an invoice says virtual CO. The reason why this is important for business owners know because just because it shows a profit on their income statement doesnít mean they have cash flow in their bank. They understand this dynamic, business owners can the better equipped to deal with understanding the profit versus cash flow in their business.

How can increased revenue place a strain on cash flow asks virtual CFO. Many business owners do not understand that when there revenue increases suddenly, their expenses will also increase the same amount. The reason why this is such a burden on a businesses cash flow, is that even though business has increased revenue, getting paid will come later, by a month or more while expenses will have to be paid right away. This can be a problem because if a business owner does not have a plan in order to deal with these increased expenses, because business owner to not be able to pay their bills, or it can cause them to not be able to buy supplies and therefore be able to fulfil the orders. By not having cash flow in their business in order to handle send increase can is business.

Another concept for business owner to learn in order to help cash flow is when a business owner uses cash to buy assets for their business such as vehicles, leaseholder improvements or equipment, they must know how their profit and loss statement is affected. When business owners use cash to buy assets, there bank account will show a decrease to the balance, they will not see it on their profit and loss statement, is expect is virtual CF. While it wonít appear on their statement the asset for example , It will show the car payment, fuel payments, insurance etc. being prepared and how it will appear on the problem statement, business owners can understand why there profit and loss statement doesnít show the asset while there bank account shows cash.

By helping all business owners understand profit and cash flow in their business, business owners will be able to better manage cash flow problems, increasing their odds of succeeding in business. Since almost one third of all businesses that failed cited cash flow problems as a reason for this failure, says virtual CFO, just helping business owners understand this, can increase business success exponentially.

A Very alarming statistic for businesses says virtual CF is from industry Canada that says 50% of all businesses are out of business within five years, and 29% of those failed businesses say that running out of cash was the reason why they failed. Business owners often have a poor understanding of why they are making money in their business, but they are running out of cash. If business owners can clear up their understanding between profit and cash flow, then they will be better armed to deal of cash flow problems in their business and potentially learn how to eliminate them from happening at all. If they can learn how to eliminate cash flow problems their business, they can succeed where all the businesses that failed because they ran out of the cash werenít able to.

Learning how to avoid cash problems is a great skill for business owners to have and can be very easy says virtual CFO. One thing that business owners can do in order to create increase the cash flow in the business, is simply by increasing the processing period for their payroll. The reason for this can help increase cash flow says virtual CO is because if there is a longer period, if businesses donít have the cash in their bank to pay for payroll, and they have enough time to collect money from their clients in order to cover payroll. If they have a short processing period, then if they donít have the money in the bank to cover payroll, then theyíll have the job on their own cash to pay payroll which can create a casual problem. Simply by having a long cut off and processing period for payroll can help business owners eliminate cash flow problems in their business.

A second way that business owners can increase cash in the business is by utilizing financing in order to achieve that goal. The first reason for this is virtual CFO is because by using their own cash to fund hard asset purchases, they are eliminating a certain amount of cash that they can use for operating capital in their Business. They are able to obtain financing in order to practice hard assets, then they will be able to pat cash free to use as operating capital. Also by obtaining a long amortization period in order to pay back the loan, business owners will be able to minimize the impact of the monthly payments on their bottom line businesses owners need to understand even if they have little bit higher interest rate, having the longest amortization period possible will be the easiest on their cash flow

The third business owners can increase cash in their business is simply by shortening their billing cycle period. Many business owners often build only when the job is done, or billed monthly that virtual CFO says that a great strategy can be to build as often as their customer will tolerate. Whether that is weekly or biweekly, increasing the frequency of invoicing clients can increase the frequency of receiving money which can help eliminate cash flow problems.