Anyone who has been in business knows that a key factor in being able to sleep at night is having enough cash to pay the bills, explain business expert Carl Reader. In fact, probably the most quoted business catchphrase is “Turnover is vanity, profit is sanity, cash is king”.
Given that cash is, quite literally, the lifeblood of business, here are a few simple tips to make sure that you are always on top of your bank account:
Plan in advance
Every day, you should be able to know how much cash you need to pull in by the end of the week and the month to pay the bills, your payroll, and leave enough for you to be comfortable. Without knowing what needs to come in and what goes out every month, you don’t know how to target your cash collection efforts.
Think about your payment terms
Most businesses automatically default to 30 day terms as some popular accounting systems default to this. You are free to set whatever terms you want, but make sure that your accounting system is able to report on overdue debtors as soon as they become due, rather than only after 30 days.
Chase your debtors
It might sound obvious (as most business tips are), but if you don’t chase your debtors, you are unlikely to get paid. The very best credit control systems remind customers to pay on a regular basis, often on the day of invoice and also before the end of the payment term period. Often, it is the “noisy” creditors that get paid - remember, the squeaky wheel gets oiled!
Plan when to pay your creditors
On the flip side, you will also get terms from your creditors. Rather than paying suppliers on the day of delivery, make sure that you use the credit terms that they extend to you. Unless they offer settlement discounts, this could prove to be a great way of effectively obtaining interest free credit.
Compare your cash position versus your plan
You have a cashflow projection, right…? If not, the first thing you need to do is map out your likely cashflows over the year. This will help you identify any upcoming tight months, and should you require it, it will provide you with the basis of your business plans for any external funding. Remember however that this plan isn’t just for the bank. You should monitor actual performance against plan, so that you can adjust accordingly.
Consider ways to make getting paid easier
Do you take credit cards? Direct debits? Online payments?
Think about the ways that you can make life easier for both your customers and yourself. Nowadays, sending a cheque is considered archaic in some quarters, and your ability to accept payments should reflect this.
Take payments in advance
Is there any way you can accelerate the payments into your business? Think about whether you could charge a deposit, or an upfront payment in advance of the service. A good way to look at this is to consider the difference between insurance brokers and accountants. Typically, insurance brokers charge at the inception of the policy, for the year ahead - whilst accountants charge for the year just passed and the work completed. One receives payment before any service is delivered, and one after all service is completed.
Carl Reader, author of The Start Up Coach, co-owner of dennisandturnbull.com