Do you work really hard at your business but never seem to have enough money?
There’s no need to panic if so! You just need to understand where the problem lies. And a good place to start is by understanding the difference between profit and loss and cashflow and then following my simple top tips for improving your cashflow.
Profit and cashflow are both important measures of the success of a business and both need to be closely monitored. Profit is what remains from your sales after all the firm’s expenses are subtracted. Obviously a business can’t survive for long unless it is profitable. Cashflow is the money flowing in and out of your business in a month. Often, the business is profitable, but the money isn’t coming in quickly enough. And so, the problem is cashflow.
But a few simple changes to some of your processes could make all the difference:
How quickly do your invoices go out?
Do you have a pile of invoices needing to be put together and sent to customers? It’s not unusual in the trades and construction industries as there can be so many demands on a business owner’s time. Having these sorts of arrangements in place can speed up what I call the sausage machine. The quicker you process the invoices, the quicker you get paid!
Have you dotted your Is and crossed your Ts?
Do you have terms and conditions in place? This is so important, not only because it will stand you in better stead if you should end up in court, but it also sets a professional impression with your customers from the outset of how you like to do business. In my experience, businesses that have Ts & Cs in place are less likely to have issues with non-paying customers.
Are you on top of late payments?
The job has been completed and the invoice sent. But are your customers paying you on time? Professional accounting software such as Xero will automatically chase unpaid invoices at regular intervals. Once again, this signals that you’re serious about what you do and your business and may be all that’s required to prompt payment. But if late or unpaid invoices are a significant problem in your business then it’s well worth establishing a relationship with a good debt collection company that can chase up debts on your behalf. Often one letter or phone call is all that’s needed and, particularly with ongoing customers, it’s much better if this comes from someone other than you so you can focus on maintaining the relationship.
So, my three top tips for improving cashflow are to send your quotes and invoices out as quickly as possible, make sure they include professional terms and conditions and to have a proper chasing system in place for payment – both within your accounting software and a person/debt collection company who can make sure those sausages come through the machine as quickly as possible!
If this information strikes a chord with you then there are lots more top tips and practical advice in my book ‘Build and Grow – How to go from Tradesperson to Managing Director in the Construction and Trade Industries’ And you can buy it from Amazon via this link http://amzn.to/2CBok2L.
The next blog will be all about how to know if you’re charging enough.