Cashflow is the lifeblood of your business. As the saying goes “revenue is vanity, profit is sanity, but cash is king”.
While big revenue numbers at the end of the year are great and high profit margins are important, it is the everyday management of your business cashflow that can make or break you.
So how do you manage your cashflow effectively through both the lean and lucrative months?
Here are eight tips to help you maintain and increase your business cashflow all throughout the year:
1. Get paid before you do the work!
Make sure you are paid up front. That means before you do the work not after you have delivered the goods and services. We don’t get to pay for our petrol after we’ve gone through the tank or get 30 days to pay for our groceries, so why should your business be any different?
The fact is people take longer to pay once they have received what they wanted. They’re happy, their need has been filled, and there is no longer a motivation for them to pay in a hurry. By getting them to pay upfront while they still have a need or a problem gives them motivation to get it paid – fast.
2. If you can’t get paid upfront get a large deposit
While getting paid up front is the best-case scenario, some clients and contracts don’t allow it. In these cases it is important to get a large deposit upfront to compensate you for at least some of the work you are doing.
It might be that you are offering a payment plan to secure a client who can’t afford your products or services immediately, or it could be due to a client’s 30-day payment terms (you can expect this with government departments and large corporates). Either way, when you’re a small business owner who is trying to make a living you need to secure some income for your own cashflow.
Charging a deposit (preferably 30-50%) upfront and a halfway payment (if possible) protects you in case a project changes or gets cancelled after you have commenced work on it. It also helps you to have money to pay your own expenses, this is particularly important if it is a project that has the potential to go on for months.
3. Have short payment terms
To increase your cashflow set short payment terms. Forget putting 30-day or even 14-day payment terms on your invoice, think more along the lines of seven days or even pay upon receipt of invoice. You want your invoices paid as quickly as possible so make sure your payment terms reflect this.
4. Pay your expenses at the end of the payment terms
In business your aim should be to get money in as quickly as possible and have it leave as slowly as possible. To do this, pay all of your expenses at the end of the specified payment terms. Better the money stays in your account gathering interest than someone else’s.
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