In business, making sales is important. Making a profit more important. But having a positive cashflow is significantly more important than both.
You can be making good sales and still make a loss. You can be making a profit but never have any cash in the bank.
What is most important is to understand the way the cash flows in your business.
Collect What You Are Owed
For some reason we don’t like asking for what we are owed, or we put it off. But at the end of the day, as a business owner you should be diligent in collecting what you are owed once you have provided goods and/or services to your customers. If you don’t like doing the credit control for your business, or don’t think you are very good at it, find someone who is.
It’s OK to say no to a customer who has a history of being a bad payer.
And you should minimise your terms of trade as much as you reasonably can.
Extend Your Own Payable Term
OK, so despite the fact the slow payers can be frustrating, the flip side is to negotiate the best trade terms possible for your own business. That’s not just about extending payment terms as long as possible, it’s about asking for a discount if you pay early or in advance.
At the end of the day, you want your customers to pay you before you have to pay your own bills.
Don’t Incur Fees
If you start paying late you’ll incur fees and penalties.
It’s a bad spiral to get into as if you have poor cashflow; it’s likely your interest costs will be higher because of credit cards, overdrafts and loans.
Don’t Spend All Your Money
A problem we see is business owners spending too much money before they have paid the businesses, or their own, bills. A business owner wants their business to look successful so they might buy a new car, or maybe new toys like bikes and snowboards.
We know that its not particularly cool running your business from your dining room table, or driving your 10 year old car, but its about preserving cash and making sure it’s spent wisely.
Any questions or thoughts about improving cashflow, we’d love you to contact us.