The lifeblood of any business is it’s cash flow and if your cash flow dries up (you run out of money), it can be difficult to operate a business efficiently and effectively.
Before you start your business you should calculate the cost of running your business and make sure your financial needs are taken care of. Many businesses fail because they simply run out of cash and cannot afford to continue operating. Making sure you have enough money to support yourself through a slow start before you leave your job to begin your business is a good idea (three to six months worth of income would be a solid start).
You may even consider starting your business on a part time basis while still working, so you reduce the chances of running out of cash prematurely. In the beginning you will need to keep your overheads low and calculate the costs of acquiring sales accurately, so you can enhance your profits.
If you plan on using borrowed money, make sure you can afford to service your debt in the worst case scenario (e.g. no income or profits for XX months). It is also wise to put lines of credit in place based on future cash flow projections before you start your business, because you will find it difficult to raise money in a hurry from traditional financial institutions if you run out of cash and even more difficult if you don’t have assets to back your proposed borrowings.
I cannot stress enough how important it is to consider your cash flow and financial arrangement before you start your business, so make sure you calculate all your cost, expenses and potential financial needs into the future, before beginning your new business (hope for the best, plan for the worst and be prepared at every turn).
If you feel you are not qualified to plan this vital part of your business, seek the services of a business professional and get them to help you put a cash flow plan in place for your business, which covers every contingency for at least the first 12 months.