Imagine you’re starting a lemonade stand. You must buy lemons, sugar, cups, and a table to set up your stand. All these things cost money.
This money you spend to set up your stand is your startup cost.
Now, you start selling lemonade. People buy your lemonade, and you make some money. Great, right?
But here’s the tricky part: the money you make from selling lemonade might not come in right away. Some customers might not pay you immediately. And while you wait for them to pay, you still have to buy more lemons, sugar, and cups to keep your stand running.
This delay between spending money on supplies and actually getting money from sales is what we call cash flow.
It’s like a flow of water — sometimes it comes in (when you make sales), and sometimes it goes out (when you have to buy more supplies).
Now, you can’t make more lemonade if you run out of money to buy lemons and sugar because you’re still waiting for people to pay you. That’s a cash flow problem.
It means you might have to close your stand temporarily until you have enough money to buy supplies again.
In the business world, especially for startups, this cycle of spending money before making money can be challenging. Cash flow issues occur when a business doesn’t have enough money at the right time to cover its expenses, like buying supplies, paying employees, or covering rent.
This can slow down or even stop the business until more money comes in, creating a bumpy road for your lemonade stand or any startup business.
P.S.: This is a sub-post I wrote for a major post about mistakes you must learn from as a startup founder.
Read the full post here.
