Cash Flow is King
There are some great sayings when it comes to your accounts – ‘turnover is vanity, profit is sanity’ for example is one you may have heard many times. My favourite has to be ‘Cash Flow is King’. At the end of the day it doesn’t matter what your turnover or profit are on paper, if you haven’t received the actual cash payment your business will be in serious trouble. Physical cash in the bank (or in petty cash) is needed to buy your supplies, pay the bills, and yourself! Without it, you are not going to get very far.
Cash Flow is the flow of your cash – in and out of your business. It may seem an obvious statement, but you need to ensure you have more cash coming in, than going out each month if you want your business to survive and flourish. You will need to assess your cash flow each month to keep on top of it and ensure you have enough cash to pay for everything.
To start with make a list of all of the expenses you need to pay for each month – rent, insurance, website hosting, subscriptions, accountancy fees, wages (for staff and yourself), phone/mobile, internet, advertising/networking, etc. Then look at the costs you pay for annually or on an ad hoc basis – insurance, professional subscriptions, website fees, printing, advertising, etc. Divide these annual costs by 12 to get a rough monthly cost. Add these annual costs to your monthly costs and these are the basic costs for running your business each month. This is the amount you need to ensure you have coming in each month to cover everything. Do you have regular monthly payments from your clients, or are they on a sale by sale basis? Are you able to project your sales (realistically) to get an idea of what you expect to receive each month? I don’t like to be pessimistic, but it is a good idea to look at the worst case scenario so you know where you stand.
If you see there is a negative cash flow (more going out than coming in), then you will need to address this. Is this likely to be short term, or long term? Are there ways of decreasing your overheads – can you find cheaper suppliers? If short term are you able to invest some money into your business, or obtain a short term loan?
There are a few ways to improve your cashflow, here are my top 6 tips to get paid quickly and easily by your customers:
1. Invoice as soon as possible – your customers can’t pay you if they don’t have an invoice with all the details, and the sooner they have your invoice, the sooner they can pay – ensure you include your bank details so they know where to pay.
2. If the sale relates to a project over a few months, then agree a deposit and stage payments with your customer, so you get paid as you go along, rather than wait until the end of the project and invoice in one lump sum.
3. Email your invoices – letters go missing in the post for a start so you can never be sure your customer actually does receive the invoice, plus if the invoice is delivered straight into their inbox, it’s there for their direct attention.
4. Add a payment service to your invoice like Paypal or Go Cardless. This enables your customer to click on a link and make an immediate payment. I have worked with a few clients who have adopted payment services, and I have also adopted Go Cardless for my own invoices, and it has really helped to speed up payments.
5. Include a due date on your invoices – the amount of invoices I have seen in the past with no payment terms or due date on is astonishing! How are your clients meant to know when to pay you if you don’t include your terms. A clear due date will give your customers a date that they need to pay by.
6. Many bookkeeping packages have autoreminders that chase unpaid invoices for you. This is a great way to keep on top of overdue invoices. You can set up when to send the automatic reminders and how often and the software does it all for you. Again, I’ve found this to be very effective, and saves you time having to manually chase your clients yourself.
If you have any questions or would like more information on how Pink Pig Financials can assist in improving your own cashflow please visit our cashflow page.
