The real estate market is tough and you’re making just enough to cover your bills. Then the transmission in your car goes out, you become ill, or some other disaster strikes and you’re hit with a cash-flow crunch.
A major challenge any business faces is managing cash flow. "Cash flow" is what we have left after taking all deductions, including car expenses, computer equipment, marketing, etc.
Another way of looking at cash flow is the money available to support the working needs of your business. You can be profitable at the end of the year and still have a cash-flow crunch. This is especially common in real estate, where you may have one large check and then go several months until you receive the next one. Cash flow is extremely important because without it your business will stop.
To avoid being ambushed by a cash-flow crunch, take the following steps:
1. Build a reserve
The simplest way to avoid being ambushed by a cash-flow crunch is to have a cash reserve.