Treat Cash like an Entrepreneur at all Stages in a Business’ Life

Business owners can benefit from incorporating entrepreneurial strategies at any stage of the life of their business.  Strategies such as conserving cash are always good strategies in the early stages of a business as well as later in its life.  Thinking like an entrepreneur will promote responsible thinking.  Just because resources are more abundant in a mature business, it does not mean the value of conserving cash is less important.

When starting a business, an entrepreneur will know that the business has to grow responsibly.  Even though, most entrepreneurs are optimistic, they also know that their resources are very limited.  They may envision rapid growth and everything going according to plan, but they also do not go out and buy everything before they can afford it.  Entrepreneurs have a limited amount of capital to work with, so they conserve cash whenever possible.

Cash is crucial to conserve early on in the life of a business as well as the business grows.  Everything that requires the use of cash needs to be evaluated for value as well as timing.  Purchasing fixed assets without having the proper financing in place will deplete operating cash flow.  It would be like an entrepreneur in the early stages of a business buying vehicles, office equipment and computers with credit cards before the business generated enough cash flow to pay for them.  Typically, these types of assets will be utilized over a long period of time, but the credit card bill will come due right away.

Purchasing a building or leasing office space that the business will grow into is another decision that needs to utilize an entrepreneurial mentality.  When evaluating major purchase decisions, a thorough analysis of cash flow as well as Return on Investment (ROI) needs to be done.  Return on Investment may meet certain thresholds that are acceptable, but the cash flow analysis will really tell if the decision is affordable.  If an asset is purchased that will save money or generate profits over several years, but the purchase is not financed and paid for over the appropriate period of time, the negative short-term cash flow impact could be severe and crippling.

photo credit: Dollars in Plant pot via photopin (license)

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