Money, songs have been written about it, books have been written about, it has been termed the Root of all Evil and we are told that it cannot buy happiness.
But, without it it, we die! Whoops, did I say die – you need money to buy food, clothes and shelter, the necessities of life and if you are sick, medicine costs money.
A business is made up of physical elements, the people who staff it, the premises it operates from, the products it sells. These cannot survive without money, staff have to be paid, rents and mortgages have to be paid and products have to be manufactured using materials that have to be paid for.
Money is as important to us as the air we breathe. It is only evil or leads to grief if used incorrectly. We all have the right to not just survive but to be comfortable.
A business gets its money from the sale of products or services. Sometimes, money is exchanged for goods or services immediately, but often, in business the product is handed over or the service performed with the promise of payment at a later stage.
If the supplier has sufficient cash in the bank to cover their expenses until they get paid, they are in the black* but if the have insufficient funds they are in the red.*
*before accounts were done by computer, they were written up in black if your account was in credit or red if overdrawn.
Cash flows in and out of the bank, if you balance your account at the end of the month and there is money in the bank, you have a positive cash flow, otherwise ou have a negative cash flow and if it happens frequently, you are in trouble.
You can stabilise your cash flow, but making more cash sales, taking out a loan, selling off assets and chasing customers who do not pay on time. You may also consider taking a deposit.
As a freelance Website Designer, I follow the industry standard of taking a deposit up front and the balance on handover. Do not get bullied into working for the promise of money at future date, if someone does not want to pay you they will come up with every excuse in the book.
As my ex-boss would say, you cannot go in to the supermarket and buy you groceries and promise to pay for them at a latter stages – you will get laughed at. So why get unnecessary credit**?
**Sometimes credit is necessary to get the client – ask yourself is it worth the trouble?