Cover image credit: Dan Campbell Photography
If you ever hear me speak on entrepreneurship, you’ll find out terrifyingly quickly that I am most definitely NOT a numbers person. I did well at maths in school, but that’s about where my relationship with numbers ended.
The financial side of business has probably been the steepest learning curve for me in the whole adventure that is entrepreneurship. Give me people, words, ideas, strategies and I’m happy. Give me spreadsheets, P&Ls and debtor lists and I’m not.
Unfortunately for me (and for you if you’re identifying), it’s impossible to succeed at business without having ongoing working knowledge of the dollars under your watch. This I realised a few months into the business when I hired my first team member and realised that I had mouths to feed other than my own.
When I catch up with other business owners, one of the most common challenges they’re having is cash flow – especially if their business is in high growth, which chews funds at a freaking unbelievable rate.
Small businesses are at the mercy of bigger businesses when it comes to getting invoices paid – effectively the smaller business acts as a temporary bank for the bigger one.
If cash flow gets out of hand and the money isn’t coming in, then your business can hit the skids scarily quickly. All you need is a couple of months of not being able to pay yourself/your team and your suppliers, and then it’s.. well.. see ya.
Most business owners I know have had to go without their own salary at least once due to cash flow issues, and we all know that baked beans are not an exciting dinner option for a month…
I’ve been very fortunate in that I haven’t experienced that (yet). There have been a couple of months when it was looking a bit sticky as payday approached, however the payments being chased hit the account and I breathed a big sigh of relief. We also haven’t had one bad debt to date (yet).
Staying on top of what’s owed to the business is a critical task for the business owner, or the head of finance if the business is at that point.
Here are some things I’ve learned that bring the chill into cash flow for me:
1. Invoice ASAP
Every day that you put off raising invoices is a day you’ll be waiting to get paid. Complete at least one invoicing session a week and get the invoices into clients’ hands immediately. I can procrastinate on boring tasks such as invoicing like the best of them believe me, but the tumbleweed in the bank account a couple of months later made me learn my lesson quite quickly.
2. Chase on the day the invoice is due
I know I’m guilty of sometimes filing an invoice in my inbox and waiting for the chase-up email/call to pay it, and I’m sure I’m not alone in that. Start chasing payment as soon as the invoice shows as overdue in your accounting software. We use Xero, which marks in red any invoices that are later than our payment terms.
3. Invoice in one hit
When I started the business, I invoiced 20% on confirmation of the campaign and the remaining 80% on completion. When I realised that clients had no problem with the 20% upfront, I increased it to 50%. And when they were fine with that, we started invoicing the lot upfront. Splitting payments over multiple invoices essentially gives you double the workload to get it paid, and also pushes back the day you ultimately get those lovely juicy funds into your business account.
4. Check your bank account and debtors list weekly
Keeping on top of debtors on a weekly basis is essential to regular incoming payments. It means you can keep the pressure on late payers, and you also have an accurate snapshot of where cash flow is at – peace of mind of course, and also so that you can manage paying your own suppliers. I have a finance “power hour” once a week, which includes checking the business bank account and looking at what invoices are due for payment.
5. Don’t chase invoices yourself!
This is my biggest tip of all – learned from our CFO. If you the business owner chase every invoice, then it becomes the norm for debtors and you’re more likely to get the runaround. If however they hear from someone on your team a couple of times THEN it gets escalated to you, they’re a lot more likely to sit up and pay attention. During my weekly power hour, I email the team a list of invoices to be chased and they send me back an update once they’ve gotten in touch with the clients. If an invoice is very overdue, then they send me the senior contact wherever it is and I speak to them direct. This usually results in the payment being made within a week. If you don’t have a team yet, I strongly recommend you hire a VA to chase payments on your behalf.
If you action even one of these tips, you’re guaranteed to have speedier payments, less financial stress and a lot more time to get on with the fun side of business. Unless you think chasing debtors is fun, in which case you’re just odd.
Do you struggle with cash flow? Have you got any tips that help improve it?