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Over the past couple of months I have talked to several entrepreneurs (some start ups and some existing) who has said “business is good, I’m getting the contracts but now I have to make sure I have the cash to fund these projects”. Which leads me to think about the old question, what comes first the chicken or the egg? Or in this case the contract or the cash? I would usually then ask have you thought about how your going to fund this project? Followed by, have you created a plan (budget)? You see, I understand that with out the contract (customers, clients, investors, etc.) you can’t get the cash but on the other hand with out the cash you cannot fund (materials, wages, contractors, etc.) the project. The answer to me is, cash comes first.

You have to develop a plan of how much cash your going to need to effectively complete this project. Whether you use personal savings, obtain a loan, or someone gives you the start up capital your going to need to pay your employees, vendors, contractors, etc. usually before your client pays you. Some of the advice I shared with these individuals are:

First, I defined cash flow. Cash flow basically means, having enough cash on hand to cover expenses.

Second, develop a budget and put it in writing. Be realistic when it comes to predicting your revenue and expenses. Don’t overestimate your revenue and underestimate your expenses. Rather be conservative (modest) by underestimating your revenue and overestimating your expenses.

Third, try to plan ahead so that you can pin point possible cash shortages and make adjustments quickly.

Lastly, try to get deposits (retainer) from clients whenever possible. The cash (deposit) will help with up front expenses.

Once you get enough customers and plan effectively, you can build the cycle of positive cash flow.