5 THINGS EVERY BUSINESS OWNER SHOULD KNOW ABOUT CASH (January 24, 2018)
Have you read one of those headlines recently? To bust a myth, most often those six figures represent turnover and are no indication of financial security or success. As the adage goes, turnover is vanity, profit is sanity but cash is king.
If you’re new to business, or contemplating taking the leap into self-employment, contracting or becoming a franchisee, the commercial secrets of a get-rich-quick entrepreneur are far less important than the financial advice you can access by talking to accountants, financial advisors and the owners of established, successful businesses.
To help spread the good word about the financial reality of running a business, I’m sharing these five top tips about cash flow.
Cash is King!
Good cash flow stems from proper budgeting and the understanding that cash is the lifeblood of business. It oils the cogs, if you like. If one part of your operation requires cash from another area to perform, you must let the money flow. Having it held up in unpaid invoices or siphoning it out of the business before it can do its job of oiling the other cogs, will soon result in everything grinding to a halt.
To give cash its rightful crown, get crystal clear about your budget. Understand your overheads (fixed and variable) and set your fees accordingly. This simple but effective approach can ensure King Cash keeps everything running smoothly.
Timely paperwork sets a standard
It’s natural to reflect the behaviours of those around you. Just as employees learn from their leaders, customers shadow the behaviour of their suppliers. If you are negligent sending out invoices, your customers will be negligent with their payments. It’s essential that you invoice in a timely and regular fashion. Not only will your customers come to anticipate your invoices, they’ll respect the clear boundaries you’re setting and replicate that behaviour.
Be diligent with collections
Nobody likes collecting money however, it is essential that you have a proper credit control and collections policy, and that you diligently call on customers who are in arrears. Cash flow is so vital to your business that without a true policy in place, you’re risking your livelihood and future success.
Always remember whose money it is
It’s yours. An unpaid invoice is money, that is due to you for goods that you have sold and delivered, and as such it is your money and you have a right to it. You should not, in any way, be intimidated or uncomfortable asking for it.
Many business owners struggle with this when they begin. Often, it’s easier to ask for money for someone else than it is for yourself. Practice makes perfect with this one, plus once you’ve felt the pinch of poor cash flow a sudden determination sets in to claim what’s rightfully yours.
Always have a backup plan
Even the best routines sometimes go awry. And when that happens, you need a backup plan that will accelerate cash flow as and when you need it. Hopefully, you will never need to utilise the back-up plan, however it still remains an essential element of solid cash-flow planning and management.