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Better Business Idea #1

Cash Flow Management

In order to stay in business, it's important to have the fundamentals right. A very basic fundamental is managing the cash flow of the business. Cash is literally the life blood of a business. If a business isn't adequately capitalized, it won't survive.

Many businesses are founded "on a shoestring". They grow by reinvesting the earnings of the business. If the owner(s) withdraw the earnings to support a lavish lifestyle, they have put the cart before the horse. Most businesses experience cycles of good times and bad times, growth and retraction. Without accumulating a "war chest," the business will be unable to survive a downturn. Further, without reinvesting earnings, the company usually will be unable to exploit the opportunities of the good times by financing expansion.

Many of the founders of companies that are now prominent lived modestly, even after their companies became successful. Some examples are Sam Walton, David Packard and Bill Hewlett. These people habitually avoided extravagance because they were focused on building something significant. The financial systems of their organizations are exemplary. They recognized that managing the finances of their organizations was fundamental for survival and growth.

It's good to enjoy the fruits of your labors - after the harvest. But don't consume the seeds for next year's crop.

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A very basic fundamental of business is managing the cash flow. Are you doing it right?


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Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, California 95128
(408) 918-3162
Fax (408) 998-2766
email: info@profitadvisors.com
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