Cash flow. It is the thing that can start and keep a small business afloat… and ruin it all at the same time. If you’re considering starting a new business, think about doing one that sells a digital product instead of a physical one. This will help keep your cash flow strong and expenses at a minimum.
What Is Cash Flow?
Cash flow is made up of several smaller components. These include:
· Expenses, and
This is the amount of money generated through sales of product and/or services. Without this, a small business owner will close up shop quickly. For a business to be successful, research and a business plan should be done prior to opening to determine what kind of income can be generated.
Some small business owners choose to look for something called “venture capital”. That’s when an investor outside the company agrees to loan start-up money to help launch the new business. This venture capital is what gives a new business owner some initial positive cash flow but the repayment of that loan becomes an expense as time goes by.
Expenses are anything that costs money to run a business from paying for utilities like electricity and phones to debt on credit cards and employees’ salaries and benefits. These expenses are paid from income and, if expenses are higher than income, it creates what is known as negative cash flow.
In business, you are either selling a product or a service. And the build-up of advanced orders is called your pipeline. Here’s an example of strong pipeline: John Davis is starting a garden bench business. He has a great design idea that he thinks will revolutionize gardening, especially for those who have trouble bending and kneeling. He has researched the market and found that there are few competitors for his waist-high custom garden bench.
But John has to make a key decision that will affect his overall cash flow: Does he build the garden bench to his customers’ specifications and ship it or does he sell his plans in digital form and make his bench a do-it-yourself operation? If he decides to sell a physical product he will have to worry more about having orders in his pipeline and here’s why.
Physical vs. Digital Product
Selling a digital product… or one that is downloaded from the Internet… is a great cost-saver. Why? Because no physical product needs to be built and no orders must be fulfilled and shipped.
And that keeps more money in your pocket.
For John, he set up his website, created an online payment portal and started selling his designs to customers. The downloading process is automatic. After payment is received, the customer is re-directed to a download page on John’s website. He doesn’t have to do anything more than check his payment portal and collect income.
This kind of digital download business can even be one where, except for marketing and customer service, you can set it and forget it.
If John had decided to sell the garden bench as a physical product, his cash flow would be greatly reduced by the amount of money he would have to spend on the materials, building and shipping of his bench.
Just like John, you can open and operate a small online business selling a digital product without spending a whole year’s worth of paychecks to get it started. Expenses are minimal and, because of that, you don’t need to worry as much about a pipeline.
And don’t forget great customer service. Answer any email as promptly as possible and if you can’t respond right away, write the potential customer and let him or her know that you will be back to them with an answer to their questions within a short period of time.
A great digital product and superior customer service will keep your small online business going for years to come.