in the land of the blind the one-eyed man is king likewise in small business small business startups
starting your own business cash is king and you need to understand and i'm going to look at
or talk about the significant difference between cash and profit in this video it's a very very
basic concept but the bottom line is in the early stages of your business you're going
to need to ensure that you have sufficient cash to keep going because you must stay in the game
i've been involved in various businesses since 1986 i was in retail for i think
20 years or thereabouts and i noticed very quickly in retail that it was quite possible for me
to be running an unprofitable loss-making business but stay in business for a long time
and the reason for that was because i was involved in a cash business i was involved in a business
that was throwing off 50 grand a week every week so if you think about it
from a cash perspective i was cash positive i was turning over the stock every day every two
days every three days every week and bringing in 50 grand and then i was getting my supplies my
stock purchases from various suppliers on terms like 30 days 60 days 90 days so by the time i
had to pay for the money or pay for this stock i would have had turned turned it over a few times
but the fundamental point is this i was in a very positive cash flow position
and i could have traded away for six months to 12 months at a loss and still stayed in
business simply because i had cash and i could keep my creditors at bay and i couldn't pay
one off against the other or play one off against the other and i could keep going
i could avert any crisis i could pay wages i could pay rent if i was paying rent i could pay rates i
could meet the ordinary day-to-day expenses of the business the ordinary day-to-day outgoings of the
business so cash is king cash is king in a small business the alternative situation is also true
i could have had a business that was spectacularly profitable and i could have gone to the wall
through the absence of cash let's say i was a consultant let's say i was an architect let's
say i was a builder let's say i was involved in some activity which on the face of it was
a very profitable piece of work very profitable contract it could be the commission of a report
it could be the building of some construction project it could be the building of a house
but and on paper the cost of the house let's say i'm building a house just for the sake of argument
let's say the cost of the house is a hundred thousand and i'm just throwing around figures
here and let's say i'm selling the house uh the end contract price is 120 grand
i have a 20 percent return actually more than a 20 return of 20 mark up there 100 grand to 120 grand
the margin is slightly different but of a markup of 20 so i'm going to make a 20 profit in say six
months time or nine months time when i have the house built the problem is in the meantime i've
got to buy supplies i've got to pay the hardware store i've got to pay for building supplies i've
got to pay for concrete i've got to pay for cement and i've got to pay wages i've got to pay trades
persons etc who i might get in to do various tasks so in the meantime between now and say six months
or nine months time when i realize my profit and get paid for the house i could go to the
wall simply because i don't have the cash i can't pay my way and somebody is going to pull the plug
bring me to court and the next thing is everybody hears i'm being brought to court i can't pay my
uh creditors as and when they fall due creditors get in then to an orderly queue they all queue up
and the next thing is the bank hears about it checks begin to bounce etc etc so there's two
quite contrasting situations one is a situation where there's no cash coming in for the duration
for example of the project say building a house there's no cash coming in and yet it's going to
be expected well it's going to be a successful and profitable project provided i can keep going
on the other hand i may well be in a retail business high volume high turnover small margin
business like for example a petrol station where the margin is very very tight then i could have
very positive cash flow and yet i could be incurring a loss on a weekly and a monthly basis
so bottom line is you're starting a business don't overlook the cash situation don't overlook
how you're going to stay in the game in order to develop your business and growth and don't over
or don't confuse or mistake the difference between profitability and cash remember you could be
loss making would stay in the game for a long time with cash you could be very profitable
both go to the wall through the absence of cash i made another video there last week
or the week before it's about the naivety of entrepreneurs something i've come across in my
practice as a solicitor i'll put a link up here and you can take a look at that it's probably
worth a look it's popular enough video but it's just an observation that i've made about people
who come to me for advice about starting their own business and so on i think it's
probably worth a look if you find this video useful i would appreciate if you gave it
the thumbs up down below and you may be interested in subscribing to my youtube channel thanks a lot