Being a business coach I get to see businesses in all sorts of situations – challenged with time management & productivity problems, struggling to build a great team and difficulties with even cash flow.
In my experience as a business coach, the one major stumbling block to growth and getting your business to the next level are problems associated with cashflow… and how to avoid them.
When it comes to decisions around money, many business owners have a few emotional issues which get between them and running a profitable business. Others may advise that you have to become a hard-nosed, uncaring person and “get over it” to make great progress in turning around a negative or ‘lumpy’ cash flow situation… I don’t agree.
To resolve a cash flow shortage or uneven cashflow you need to put systems and processes into place so that there is no emotional conflict when it comes to money.
David Guest’s Three Tips for Even Cashflow
1. Collect Fast
Set up processes in your business so that you get paid as soon as possible.
- Invoice customers on the same day you ship items to them.
- Get a deposit before you begin the project.
- Ask for the account to be prepaid (just like some mobile phone companies are doing right now).
- Put regular customers who pay a monthly fixed amount on a direct debit payment plan.
- Offer a discount to encourage people to pay early (better yet offer a discount for cash).
- Charge a penalty fee for people who pay late.
- Deposit cheques the same day you receive them.
- Make sure you always have an order form about your person.
- Have a way to process credit card payments at the ready – an EFT device, ring the office & get someone to process right away, install an app on your mobile that makes it a virtual terminal.
2. Have Policies
When you have policies in place it becomes difficult to make an exception or be emotionally swayed to do something that isn’t in the interests of your business.
- Reference check new customers and find out what sort of payers they are (knowing where you stand before you start to do business will help you cover the risks).
- Have a process of reminder letters, emails or SMS messages that automatically get sent out when an invoice or account becomes overdue.
- Hold back orders, products and services until unpaid accounts are paid.
- Refrain from paying your bills as soon as they arrive, but make sure you pay them before they become overdue.
- Don’t issue advances or loans to your employees. If you must, then have a written agreement which sets out the repayment terms and due dates.
- Reconcile your bank statements, credit card accounts and other financial accounts monthly.
3. Mind Your Money
There’s a saying, “If you don’t mind your money, someone else will!”… and who knows how that someone else might want to spend it or just take it from you.
- Set aside the tax amount your customers are paying into a separate account – that way you’ll always be able to pay your taxes.
- Instead of leaving money sitting around in your bank account, put profits to work earning a higher interest rate.
- Have cash in the bank rather than inventory on shelves or materials in storage.
- Spend money only on the marketing that gets you sales.
- Measure the return on investment on everything you do.
- Read your accounting reports each month and ask questions if there’s something you don’t understand.
- Always be on the look out for a better deal – one that saves you more time, increases productivity, gets you more sales or reduces expenses.
Whether you have a million dollar empire, a growing venture, family business or an early start-up, cash is the lifeblood and cash management knowledge and skills are what will keep you moving in the right direction.
So if you’re feeling that yours could be a little better, but you don’t have time to do a course then find yourself a business mentor or business coach who will give you some shortcuts, until you’re able to get the time to do the learning.
At some point in your entrepreneurial career you will need to be great at cash management, so get started as soon as you can, whether you go it alone or with the advice of someone you trust , and get your business into a habit of strong stable cashflow.