One of the most stressful aspects of running a business is managing cash flow. Using an analogy, if a company runs out of cash flow, it will die just like a fire without oxygen. This is why it’s crucial to keep tabs on money and avoid excessively dragging out payments for services.
Late payments have contributed to my stress and frustration regarding cash flow throughout the course of my business career.
In this article, I’ll explain the significance of cash flow and share my strategies I’ve used to boost my company’s cash flow.
What is cash flow?
The amount of money that flows in and out of your business over time is measured as cash flow. Positive cash flow indicates that more money is coming in than going out, whereas negative cash flow indicates the opposite.
Why is cash flow important?
When running a business, cash flow is crucial but often beyond your control.
It’s especially difficult for small businesses to wait for payments, which can lead to a number of temporary cash flow problems.
The longer you wait to receive payments, the more debt your business will accrue and the more difficult it will become to repay the money it owes.
The battle of chasing invoices
It’s cause for celebration once a sale is finalised. However, it could be quite some time before that cash actually starts flowing into the business. This is the time that elapses between when an invoice is sent out and when it is paid.
We’ve had to deal with the age-old problem of following up on overdue invoices in the past. There will be more back and forth with clients as a business expands and as more projects and services are offered.
You should think about the red tape your client or customer may have to jump through to get that money released by their top management, which could cause further delays.
How we improved our cash flow as a business
When you’re a business owner handling finances on your own, the stress can take a toll on your health.
One of the best decisions I made for the company was to hire an in-house bookkeeper. This has led to streamlined operations, timely bill payments, and an increased feeling of confidence in our company’s financial stability.
Having a bookkeeper as part of our internal team has been a game-changer, but it may be out of your price range at the moment. In the past, I’ve outsourced this task. Knowing that my financial obligations are being met frees me to concentrate on acquiring new clients.
We’ve also got some new methods of invoicing and payments from our clients. Which are:
- For new clients, 50% upfront, 25% in the middle and then the final 25% upon completion of the project.
- For an approved client, we agree the sale and send an invoice which MUST be paid within 30 days.
- For retainer clients, we have a monthly fee which is set up through direct debit.
- Be understanding of the red tape clients/customers may have before they can get the money released to you.
- Have systems to avoid going through a cash flow bubble.
- Consider hiring a bookkeeper in-house to have clearer processes and systems to get that money in the bank.
Thank you for reading this chapter of the Diary of an Entrepreneur. I must stress, I’m not trying to teach you anything. I’m just sharing my journey, and if it motivates you, then great – job done.
If you want to hear more about my entrepreneurial journey, check out the Diary of an Entrepreneur podcast on all available platforms – I talk all things business in terms of my OWN journey and experience. It’s not one to miss!
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