Today I’m going to talk about a meeting I had with a very successful individual called Alan. He’s a millionaire who owns a rental company but not your average one… He rents supercars to individuals all over the world. As you can imagine this requires a lot of management of capital, insurance and cash flow, as a few mistakes and some bad luck and your business could go under, and one thing that you can’t have is selling supercars back to the supplier at 50% cost price you paid! That’s a quick way to a broken bank balance! Instead he talked about the most important element being cash flow.
If you don’t know cash flow is the actual monetary funds you receive into your business on a regular basis. For example you may have £10,000 costs per month, meaning you will need to have 10,000 of cash into your business each month to break even. But there is something so much more important when it comes to cash flow, and that is to ensure you have enough to not only break even but also to make sure your business keeps moving forward, for example marking your business to individuals will cost money (as does advertising) and if you don’t have a marketing budget then your business will slowly but surely bleed money.
Re-investment – But don’t over-spend on your business. Getting the right amount of re-investment is the key to business growth and stability. For example if you don’t have enough to invest into a business the sales will decrease, this is simply due to marketing and advertising costs (amongst other elements.) But if you invest too much into the business at once, then when unforeseeable events occur, you will not have the personal funds to utilise for them. This is one of the most important mixes for a business and one that is incredibly difficult to get around.
In conclusion it is extremely important to not only track cash flow, but to also make sure you have enough at certain periods of time to make sure you can survive any unforeseen issues. For example you may think it is better to get a lower unit cost from a supplier but then if you have no money to actually use in the marketing of the units themselves then the unit cost decrease is going to mean nothing as you won’t sell many!