How To Make It Rain in your Cashflow Drought
This One Thing Will Help Change Your Cashflow Problems
Growing up on a farm in NSW, the subject of conversation around the dinner table was more often than not about the weather. Was it going to rain, was it not going to rain. Droughts are a common thing in Australian agricultural industry and my heart goes out to all those affected severely by the drought this year.
What is the weather like in your world of business? A lot of small business owners I meet run their businesses reactively as if they are just waiting for the weather to change. At the whims of the government, or the changing of industry regulations, hoping the phone will ring for new work, or sitting and waiting on payments to be made by clients that seem to go on well past due dates… All of these things place pressure on already stressed out business owners… but ‘cashflow’ seems to be the common theme that becomes the focus of blame for failure across all industries.
Let’s talk for a minute about cashflow.
Cashflow is the money flowing in and out of your business on a monthly basis. Though it may feel like the money just keeps flowing out, the money you are being paid for your products and services is part of the money flowing in.
Positive cashflow means you have more money coming in than is going out, and is essential for growth and performance success.
So where is all the money, honey?
A lady told me the other day that her accountant told her that she had the most profitable year yet in her business, and yet there was no cash in her bank account… So where was all the money?
I won’t go into the detail of accounting terminology, but to put it simply, the money was all tied up – mostly in outstanding invoices from clients who were delaying in paying.
Cashflow is an issue that small business owners face, especially those who have irregular billing cycles or projects that extend beyond a month or two. Dealing with larger contractors who have 90 day payment cycles can also mean that small businesses are having to cover the load while waiting for the money to roll in.
Debts accumulate, interest grows on borrowings, and people end up in a real mess.
“According to a recent analysis of 20 million invoices by Fundbox, nearly half of all Net 30 invoices are paid late, while 45% of Net 60 invoices and 35% of Net 90 invoices are as well.” - XERO
So what can you do?
This One Thing Will Change Your Cashflow Problems
Every time I say this to small business owners they get very nervous, and come up with every excuse under the sun to avoid it…
Ask for 50% upfront for the project, and have payment instalments for long-term projects.
What????
Yep.
Or in some cases, ask for all of the payment upfront. You could incentivise your clients for paying up front, or penalise those who want to pay late - if you are really nervous about this one.
I have seen many business owners switch to both of these models of payment and they have never looked back. As long as you outline the terms of service and payment terms when discussing the contract, there should be no issues here.
Here’s how to make this work for you and maintain your professional approach:
1. Have the money conversation early on in the project discussions – tell people your rates, and your payment terms when you first start discussing the project or your service offerings
2. Don’t work with anyone who has a reputation for paying late, or is already difficult to negotiate with during the contracting stage – more often than not, these people will continue to cause headaches down the line.
3. Always sign a contract with the payment terms clearly outlined
4. Don’t start work until the money is in the bank – seriously.
Take some time to assess your payment terms and conditions. Work with an advisor who can help you establish some better practices to help you solve your cashflow problems and move you out of the Wilderness and onwards towards Lifestyle and Performance success.
Systems Might Not Save The World, But They Sure Will Save Your Business!
Get Our Free Workbook
Everything You Need To Build A Reputable Business That Can Grow & Scale Without YOU
Stop with the piracy and get CLARITY and a step-by-step blueprint of how to implement our Nine Pillar Framework that is critical for building a 7 or 8 figure company. You will not be able to escape the day-to-day of your business without systems.
