There are countless reasons why businesses fail, such as choosing the wrong business partner, not listening to your customers or avoiding having a business website. But if you choose only one thing to get right, make sure it’s your cash. 90% of small business failures are caused by poor cashflow, according to Dun & Bradstreet.
Here are my top 5 tips to being cash happy.
1. Create a cashflow forecast.
A cashflow forecast is a planning tool which can be very simple to set up and maintain. I suggest creating a weekly one which spans up to 6 months. To create your cashflow, use a spreadsheet like excel, start with your current bank balance at the top. List all your outgoings for the week underneath it, and the income you expect to receive from clients. At the bottom, you should calculate what your expected cash balance should be by the end of the week. Teach someone in your organisation to keep this up to date and track it’s activity. You will be able to spot very quickly why things may be better or worse then you expected and you will know what you can afford to pay out. Set targets for your credit controller to ensure it is given enough attention and ownership.
2. Agreed terms & conditions.
Have very clear payment terms which have been agreed upon by both parties before any work has begun. A clause in your client contract could say “Invoice will be supplied to Client once work is complete and Client will pay Company 30 days from the date of the invoice”.. for example. Agreement to these terms should be written or documented somewhere, in case anyone has sudden memory loss.
3. Invoice quickly.
The sooner you get the invoice out the door, the quicker you will be paid. Devise a system whereby the person raising invoices is told exactly when a project is complete so that she or he can send the invoice out that day.
4. Have clear credit control procedures.
These procedures should be documented and part of your credit controller’s task list. Call your client’s accounts payable department before the invoice is due to ensure it has landed in the right hands and there are no problems with it. I have seen invoice payments delayed by months because the addressee was wrong, or the wrong purchase order was used. Ask for a payment date and make a record of all calls to clients. If payment is late call again. Send statements once a month. Be a very polite and friendly pain in the neck.
5. Keep your friends close and your bank closer .
Keep your bank informed of how your business is doing. Devise a plan B with your bank manager. This could be having a line of credit in place, just in case things don’t go to plan. You want something to fall back on well before you actually need it.