image:sbinformation.about.com
culled from:businessinsider.com
A leading cause of business failure is poor cash flow. I came dangerously close to going broke more times than I care to admit.
So when it comes to cash flow, I had to become an expert.
You need to be a cash flow expert also. Here are a few of the ways I keep the cash running like a river.
Get a deposit:
Stop being afraid to ask for money up front. For new clients, ask for at least 25 per cent and invoice the other 75 per cent upon delivery. On all contracts under $1,000 – I ask for 100% upfront because on smaller dollar values, it’s not worth my while to chase after the money. What if the client doesn’t want to pay anything upfront? Believe me, you don’t want those clients.
Many new businesses are very reluctant to ask for money upfront, but you absolutely must do it in order to give your business the fuel it needs. (Most government clients will not pay upfront, but they usually pay within a reasonable period of time).
Allow clients to pay online or by direct deposit:
You must have a PayPal account and preferably, a merchant account. To get people to pay faster, I offer a small discount for online payments. PayPal takes a small percentage as a commission but it’s worth it to your business to get that money faster. You can then write off the PayPal commission as a business expense.
Ask clients if they offer direct deposit payment (where your money is put into your bank account). If so, sign up for their program. Direct deposit is more secure and always much faster than a cheque in the mail.
Hold back something until full payment is made:
If you give your clients everything, before they have paid even one penny, I guarantee it will take you a long time to get paid. Why? There is no incentive on their part. Hold something they need back until all fees are paid.
If you don’t absolutely need it, don’t buy it:
Your cash will disappear at a frightening pace when you start buying things that are not essential. Each quarter, make a purchase for the business as a reward for good profits earned that quarter.
Don’t charge interest:
It doesn’t work. Large clients, in particular, don’t care about your threats to charge them 2 per cent on overdue accounts. Plus, doing so, is costing you more than that 2 per cent in greater administrative costs. Cut to the chase and inform them of what action you will take, including collection, work stoppage or withdrawal of all future services. If they value you at all, they’re going to pay.
In serious cases where a client outright refuses to pay me, and ignores all requests – I inform the client that they will be reported to the Better Business Bureau and other complaint channels. I also let them know that other suppliers will be informed of their behaviour. I also never do business with them again. If they treat you like that once, they will do it over and over again.
Contact the boss:
No company wants a reputation of not paying. They certainly don’t want a poor credit rating that can result from failure to pay. But the only person who really cares about those things is the President or owner. That’s why, if I can’t get paid, I send a note to the client’s top brass, reminding them of the negative impact on their business. I usually get the cheque the next day by courier.
Cut and boost:
The combination of trimming your expenses by just 10 per cent while increasing sales by 5 to 10 per cent at the same time, creates the net effect of a 15 to 20 per cent boost in profits. Down a little bit at one end, and up a bit at the other.
You will be amazed how this combination will dramatically increase your cash flow. Just doing one or the other is not as effective as doing both at the same time.
Diversify:
You must diversify your business to increase cash flow. Break existing products and services down into multiple packages. Create add-ons. Do whatever you can to expand your offering.
In some cases, you may be able to offer “self-service” and “full-serve” (which is what my business does).
Payment milestones:
For larger projects, provide the client with a spreadsheet outlining milestone invoices. Phase one, you will invoice a certain amount, phase two, another amount, and so on.
Tax planning:
This is a big one. You need to know exactly what you owe in taxes and create a tax account, not to be withdrawn from for any purpose other than tax payments.
Consider incorporation if you’re making more than $80,000 a year because, in most cases, this will lower your overall tax. It does cost money to incorporate, but in the long term, it’s almost always worth it.
You need an accountant who does more than just prepare your taxes. You need a tax planning professional who understands tax law, takes a sincere interest in the success of your business, and can design a tax plan for you. A tax “preparer” is simply going to calculate the taxes you owe. They will not make any effort to find ways of lowering your taxes.
You must owe the least amount of tax legally possible and have your accountant put you on a tax payment schedule. The last thing you want is to go under because of back taxes.
