Cash Flow of Your Business

July 2, 2017


Cash Flow of Your Business


How the Cash Flow of Your Business Can Either Make You or Break You and What to Do About It

Will the initial cash flow of your new business exceed all of your expenses?

If you do not determine whether or not your gross revenues will exceed your expenses during the first year, you may be preparing for a swift business failure.

So that you have an accurate picture of what your business finances will look like during the first year, calculate your projected monthly expenses for the first three, six, and nine months. Then approximate the gross revenue you expect to generate during these time frames.

When you calculate these numbers, try to be as realistic as possible–and don’t be overly optimistic about profits. If you are, these numbers will tell a deceptive story…

Let me show you what my approximate cash flow looked like during the first month of my vending business.

First Month


Loan Payment $296
Postcard Postage $126
Mailbox $200
U-Haul Rentals $167
Cost of Goods $300
Sale of Goods $120
TOTALS $1089 $120

~ Loss: $969 ~

In the first month I had a number of upfront costs that I didn’t have to worry about in succeeding months.

For instance, the cost of the postage for the postcards, the U-Haul trucks to place the machines, and the rent for a year’s use of a personal mailbox were all expenses that didn’t recur in the second month. With that in mind, let’s look at what the second month looked like.

Second Month


Loan Payment $296
Cost of Goods $60
Sale of Goods $220
TOTALS $1089 $220

~ Loss: $136 ~

In my second month, I only partially refilled each machine, so my cost of goods dropped. My sales increased as more people at the businesses realized my machines were available.

The months that followed looked very similar to the second month. Some months I earned enough to break even, but never did I generate a profit.

If I had purchased less expensive equipment, or had I money that I could have used to purchase the machines outright rather than financing them, then maybe I would have turned a profit. But such was not the case.

As you plan for your business, compare your projected expenses and profits at the first, third, and ninth month. Will your gross revenue be sufficient to pay for all your operating expenses? Will you have profit left over? If you will, that’s great!

But, if you find that your gross revenue won’t be sufficient to pay for all your operating expenses, then find that place in time if and when your gross revenue will pay for your operating expenses. Then backtrack and calculate how much money you’ll need to make it to that place in time. Add this dollar figure to your start-up costs so you avoid cash flow problems during your business’s infancy.

For instance, if I knew my vending business would have turned a profit in the third month, then, based on the figures above, I would have minimally needed $1,105 to fund the first two months losses.

Remember: Always make sure your cash flow will cover your operating expenses–sooner rather than later.

Next up: Putting Time in Your Favor



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