Cash is king, any business owner knows this and the ability to manage your businesses cash flow is critical to the success of it. In fact, if you run out of money, even if you have orders and money coming in, eventually your business could be forced to close. Even a business that regularly grosses millions of dollars can fail due to poor money management.
Have Separate Bank Accounts
No matter how your business is structured, large or small it’s important to open separate bank accounts to keep the money for the business you run your business with. Always keep enough cash on hand to keep your business open, in the one account. Many businesses fail not due to low revenue, but due to spending the money in your account, before it is really yours. It’s not yours until you pay it to yourself and put it in your personal bank account. And it should never be put into your personal account until you’ve paid your business bills.
Know Your Cost of Doing Business
Every business, including online businesses, have a cost of doing business. There is a minimum cost that is required to “keep the doors open”. You must always have at least that amount of cash on hand, and work toward being three to six months ahead. If you do that, you won’t have as many cash flow problems and you’ll be able to prosper and under a lot less pressure.
Money Management Bookkeeping Early Warning System
Never be afraid to do your bookkeeping, without daily entries you can miss some very important issues that might be happening in your business. In fact, think of bookkeeping as an early warning system to tell you when things aren’t quite right. You can’t know where you’re going if you don’t know where you’ve been and don’t have any clear-cut goals. Keeping your books regularly will help you establish them and meet them.
Establish Your Companies Payment Terms
If you are selling services over products, this is a very important factor to remember. If you don’t have clear payment terms that your clients all have to abide by, you can run into severe cash flow issues that can literally close your business down before you get paid for the work you are doing. By establishing a three to six-month cushion you can avoid a lot of problems, but nipping non-payments and slow payments in the bud will help even more and telling your customers that your payment terms are monthly invoice with payment due within 14 days leaves no one in doubt, you need to work out your own payment details and make sure your customers are aware of them.
Work Enough to Get Paid
It can be very easy to get distracted by unpaid work I know this from personal experience. This is most especially true if you have an online business, there is so much work to do on your business that you can forget to do the work you need to do in order to get paid. Be sure that you do enough work every single day to get paid what you need to be paid. If it requires 5 hours of billable work a day, you need to do 5 hours of billable work a day. If you don’t have 5 hours of billable work to do, you need to be using that time to seek paid work.
Almost All Cash Flow Issues Can Be Avoided
Believe it or not, most cash flow issues can be completely avoided with planning and forethought. You need to have policies for payment, late payments and debt collection in place that make it easier for you to deal with issues as they come up. In many cases you can require payment in advance, start accepting credit cards, or offer financing with interest so that clients are incentivized to pay on time and never be afraid to chase up clients for payment.
Treat Your Customer Right and They Will Treat You Right
A good way to get paid on time by your clients is to deliver quality work on time and on budget, with clear expectations of payment due before ownership or delivery of goods and services can take place. The more you value yourself as a business owner, and the more you respect your clients as business owners, the easier money management becomes.
Know Where Your Business Is Headed
By establishing clear and precise goals, keeping your company books, and doing enough work to get paid, you’ll start to see patterns emerge. For instance, you might notice that during certain times of the year such as June/July (financial year end) and December (Christmas), your clients start slowing down either payments, work or both. If you know this in advance, you can plan for it by getting more work, or by adding to your cushion to avoid any cash shortages at these times.
Managing your money is a skill that anyone can learn, here in Australia most accountants will now help you to learn the skills that you need, they will help you set goals and understand all aspects of your business. If you don’t wish to have such an in-depth relationship with this new breed of business coach accountant then go get a few good books and learn what you need to learn because money management is one aspect of business that you need to get right.