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Mac Attram

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How's Your Business Cashflow?

Posted: 28/01/2013 10:19

As every business is different, the flow of cash into the business is going to be different. With products, it's fairly simple. The customer pays and then receives the product. Retail can be largely seasonal and therefore to a certain extent is more predictable. Service industries on the other hand are a completely different ball game. Thousands of freelancers and small business owners waste endless hours chasing payments from clients who have not paid. The reason why they have not paid is probably because their cashflow is in a mess, so you need to ensure that yours is robust. Here are some questions to ask yourself:
When do your customers pay?
How do they pay?
What is the frequency of the payment?
Are they locked into a contract with you?
What happens if they don't pay?
Who do you need to pay and what date?

A lot of businesses go bust not only because they don't generate enough business, but essentially because their cashflow is in a mess. If all of your business bills go out on the first of every month, and the payments don't come in until the 10th of every month, you have a cashflow issue, because the chances are, there may not be enough to cover the bills at the beginning of the month. Everything in your business should be predictable. You should know when the money is coming in. You should know when the money is going out. And you should know your net present position at any given time. People spend far too long servicing their clients, and not enough time on their business structure. The truth is, your business structure and operational systems are the most important component. If you are offering the right service at the right price and there is a demand, the customers will come.

So, how can you ensure that the money is flowing effectively in your business? Plan! Make a list of the money going out, and the date that it goes out.

Ensure that clients pay you at the beginning of the month by standing order, particularly for clients on long term contracts.

Review your contracts regularly, and offer discounts for clients that pay for 6 - 12 months in advance. This will save you time on having to chase payment.

Forecast future expenditure, and factor in your tax.

Have a dedicated finance person, such as your accountant to look over your finances regularly, as well as you. This will ensure that there are no holes.

A huge issue with business owners in this climate is under-pricing. The fear of scarcity can make business owners run scared, and they end up pricing themselves out of the market without even realising it. Sure, it's a tough economy, but the last time I checked, there was still enough money in the world. Know your market, and price accordingly, and always look at ways that you can increase the flow of cash coming in to your business. Managing cashflow is about prediction, and part of prediction includes planning for growth.

 

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