I read a lot of books on business and the resounding consensus is that “Cash flow is King”, this morning I’m trying to figure out how I can apply that logic to my Amazon business. Here’s what I’ve come up with so far.
1) Having a decent amount of surplus cash on hand will allow us to take advantage of unexpected business opportunities. Some times in Retail Arbitrage we need to be able to buy lots of inventory fast, in order to get stellar deals (this definitely comes into play if we are negotiating with management). If we sell used books, having a decent amount of cash on hand will give us the option of buying books in bulk, if the opportunity arises.
2) The more money that we have left over after all of the expenses have been paid, the more opportunities that we have to grow and scale our business. With that surplus of cash we can hire more employees or independent contractors to do some of the work for us, while we focus on expanding other aspects of the business.
3) If we ever want to get a business or personal loan from the bank, for any reason at all, we’ll need to show a couple of years worth of healthy cash flow. If our business only makes enough money to pay the bills, and that’s it, banks will be weary of offering us some financing. At minimum we need to be able to afford the monthly payments.
-The temptation is there to legally structure my business in a way to minimize how much taxes that I have to pay at the end of the year. This can be done by investing in new equipment at the end of the year, that would otherwise be unnecessary. Yes, it’s nice to have a new vehicle, computer and printer, but are these short term gains (less in taxes due, because expenses are up which means net profit is down), worth the long-term consequences?
We operate a debt-free business, but down the road if we would like to say, invest in some real estate, having a healthy history of sustainable cash flow (even at the expense of paying more income tax) would be essential in acquiring the necessary business loans.
What are your thoughts? I’m sure I’m missing some good reasons why Cash Flow should reign in our Amazon businesses, I’m looking forward to your input.
You are really close to getting actionable info to help you take your business to the next level or to start one from scratch.