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cash

Next on the pre-business list is Cash. It is the blood of the business; hence, essential to its survival.

cash

Cash refers to the money coming in (revenue) and the money going out (expenses). To be successful, your expenses should never be consistently more than your income; luckily, this is actually manageable as it is pretty easy to determine and control [to an extent] your expenses as they would most likely be recurring (fixed/overhead costs or operational expenses) – utility bills, rent, salaries/wages, new inventory, and so on.

You don’t necessarily need money to start, but to grow and expand, you need money. Money can come from family, friends, grants, angel investors, partnerships, bank loans, or venture capital. If you’re seeking investment, you should seek in that order.

Before seeking investments and venturing into business, you need to, first, be disciplined with your personal finances. If, for example, you’re a spendthrift, and you don’t get your spending under control, you will bring that weakness into your business; before you know it you’re taking funds from your business is offset personal debts, and it’s a slippery slope from there.

Disciplined people work with budgets, so if prudence is a challenge for you, or you’re prone to it, you need to create a budget. A budget is simply creating a balance between your income and expenses, so you don’t spend more than you earn. A good budget has income portioned primarily into bills (phone, internet, power, water, heat and so on), groceries, savings, transport fare/fuel for vehicle and/or generator (gas/diesel), clothing, and miscellaneous (birthday cards, gifts, medical emergencies, repairs and so on). Everything has to be properly planned such that there are no constraints.

Beware, it is one thing to have a budget, and quite another to follow it. The true discipline is sticking to it long-term, and adjusting it as you see fit as income increases/decreases or responsibilities increase/decrease.

As soon as you’ve mastered making and following a budget, you can apply the principle to your business. However, this time, the budget will be called an Income Statement. Remember to ensure your expenses don’t surpass revenue too often, or it will be RIP business venture. Once you can maintain cash flow and steadily increase revenue, while keeping expenses low, you’ve begone to make a profit. You make enough profit, you can start repaying loans, and reinvesting into the venture. Now, you’re in business!

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