Cash Is King
If you are in business, you must file with the "Income Tax People" an income statement and a balance sheet. That's how they calculate the taxes you will have to pay. Both the income statement and the balance sheet have all these "non-real/fake items" such as depreciation... Both income statements and balance sheets used something called "accrual basis": Accounting transactions are recorded when they occur instead of when payment for that transaction is made or received.
But that's not my real world. In my real world, I have to write cheques, I have to pay my Visa, my Mastercard and my American Express. I have to wait for payment from my customers. In the real world, I have to deal with cash. My monthly cash flow is how much money comes in during that month minus how much cash goes out during that month. This tells me how much business I have to "drum up" and how much I can spend.
- How much money I will get is very different from how much business I did? Some customers pay on delivery, some customers pay in the next couple of weeks and some customers will be a struggle.
- How much money I spend is very different from cash? By managing my credit cards, I can get as much as 49 days of free credit. I always time my big purchases.
Cash is king. Always respect the king, take good care of the king, know what's happening with the king and it will be easier to stay in business.
Every photographer knows how much they sold this month but if you cannot answer the following questions, you will not be in business for long:
- What's your cash balance? Right now, to the nearest $100 or your local currency and it must include your credit line.
- What's your incoming cash this month to the nearest $25 or your local currency. You need to need to know what your receivables are, and how quick you will be paid.
- What's your cash layout this month to the nearest $100 or your local currency. You need to need to know what your payables are, and how quick you will be spending the money. Or in the Internet/Venture world: what's your burn rate.
Tags: Biz101
If you are in business, you must file with the "Income Tax People" an income statement and a balance sheet. That's how they calculate the taxes you will have to pay. Both the income statement and the balance sheet have all these "non-real/fake items" such as depreciation... Both income statements and balance sheets used something called "accrual basis": Accounting transactions are recorded when they occur instead of when payment for that transaction is made or received.
But that's not my real world. In my real world, I have to write cheques, I have to pay my Visa, my Mastercard and my American Express. I have to wait for payment from my customers. In the real world, I have to deal with cash. My monthly cash flow is how much money comes in during that month minus how much cash goes out during that month. This tells me how much business I have to "drum up" and how much I can spend.
- How much money I will get is very different from how much business I did? Some customers pay on delivery, some customers pay in the next couple of weeks and some customers will be a struggle.
- How much money I spend is very different from cash? By managing my credit cards, I can get as much as 49 days of free credit. I always time my big purchases.
Cash is king. Always respect the king, take good care of the king, know what's happening with the king and it will be easier to stay in business.
Every photographer knows how much they sold this month but if you cannot answer the following questions, you will not be in business for long:
- What's your cash balance? Right now, to the nearest $100 or your local currency and it must include your credit line.
- What's your incoming cash this month to the nearest $25 or your local currency. You need to need to know what your receivables are, and how quick you will be paid.
- What's your cash layout this month to the nearest $100 or your local currency. You need to need to know what your payables are, and how quick you will be spending the money. Or in the Internet/Venture world: what's your burn rate.
Tags: Biz101
