Cashflow is king

entrepreneur cashflow

So you’ve quit your job. Or maybe you’re straight out of school or varsity. Now you’re setting up your own business.

There is only one thing to know:

Cashflow is king.

Cashflow is a function of cash inflows and cash outflows.

Let’s start with cash outflows.

The easiest way to make a profit is to not spend money. You need to be frugal.

Keep your costs down. You’re not spending your parent’s or your employer’s money anymore.

You’re spending your own money.

  1. Do not hire an IT guy

Especially when coming out of a big company, the world of IT seems so intimidating that it feels absolutely necessary to bring in an expert. Aside from the danger of adding overheads, an IT guy lets you abdicate responsibility for an important part of your business that’s actually not so difficult nowadays.

Sign up for Office 365 or Google Docs. Don’t try be cool and go with the latest craze. If you know Office, stick to it. 365 is perfect because it’s a rental model, which saves you cash up-front and plugs you into an infinite upgrade stream.

For email, domain registration and web hosting use Hetzner.co.za. The UX isn’t as nice as GoDaddy, but its local (fast) and its German so it always works (although they may cheat on emissions). Best of all, if you have a problem they have a call centre in your time zone.

  1. Nail your brand early

It makes life easy going forward. Find someone (an individual) who provides the full bouquet: logo, letterhead, website. DO NOT USE AN AD AGENCY. If you become a monster corporation one day, sure, go ahead and use the likes of Ogilvy.

Until then, be frugal.

Design your own business cards. Use Moo.com. Best quality cards in the world. Get the thickest stock available. People are impressed by thick cards (girth matters), and when you’re a startup you need as much help as possible when it comes to seeming credible.

Even more important than business cards is a sign. You’re not a real company until your office has a sign.

  1. Buy stationery yourself

When you come from corporate, you’ll be at a loss as to how to do things yourself, i.e.: finding printer paper, booking flights. Fear not, you too can do it. You’ll find you get better deals than big companies do, even though they supposedly have much greater buying power. Also, you’ll get a feel for how much stuff costs in the real world. Like one litre of milk (R10). Or a 40min flight from Jhb to Polokwane (R2,000).

It’s difficult to be frugal if you don’t know what stuff costs.

  1. Use Apple Macs

This flies in the face of “frugality”, but Apple makes the best hardware. It never breaks so you have less need for IT support (see point 1), and it looks cool (see point 2). What’s the point of working for yourself if you can’t at least look cool?

  1. Use the cloud

Ignore the noise of all non-cloud vendors. Use the cloud for document storage (Box), sharing (Slack), CRM (Salesforce), hosting (AWS), websites (WordPress), etc. Don’t do it yourself. Let someone else worry about encryption, backups and data security.

When in doubt, don’t do anything. There are many things that seem essential when you’re in corporate, but which are in fact superfluous. Like fancy coffee. Ricoffee with milk and sugar is actually survivable.

Generally speaking, learn to do it yourself. If you can’t figure it out, outsource to the specialists. If you don’t know who the specialist is, Google it. If you don’t know how to Google it, stay in corporate.

No matter what, be frugal.

Some companies boast of valuation or revenue or profit or users or market share.

Outside of Silicon Valley, these metrics are meaningless.

The only meaningful metric is cashflow. You need to spend less money than you make.

The starting point of positive cashflow is to be frugal. Don’t spend money unnecessarily.

Ignore the accountants, ignore depreciation, ignore goodwill, ignore your balance sheet, ignore your income statement, ignore your valuation, ignore your revenues.

Pay attention to your cashflow statement.

“Revenue is vanity. Profit is sanity. Cashflow is reality.”