No matter the size of your business, and no matter the industry you’re in, there’s always a chance that things might go wrong. One of the most common killers of businesses is a mismanaged cash flow.
Unfortunately, keeping track of the cash flow in the day-to-day running of a business can often fall by the wayside, which means if things go wrong, it may even happen without you noticing. The first step to gaining control of your cash flow is knowing the most common cash flow killers. Keep reading to find out more.
Be aware of the payment period for customers and clients
As a business, it’s important to balance your cash outflow and inflow. Unfortunately, many businesses have different payment periods making it difficult to keep track. For example, large companies are starting to push their payment period out to 90 days, which means you may not get paid until three months after you complete work or provide a service. If these lagging payment periods are causing your cash flow to suffer, you might want to consider whether or not it’s in your best interest to continue business with them.
Avoid risking your business on one or two key clients
Do you have a couple of big paying clients? Although, as a business owner, these big-ticket clients may seem like a dream come true, it doesn’t mean (financially) you can relax. Your portfolio should be spread out, balanced and diversified so if cash inflow from a key client suddenly stops or they default on a payment, your business will still be able to pay the bills. Ever heard the saying, “don’t put all your eggs in one basket”? In business, this saying couldn’t be more accurate.
Don’t mix personal and business money
As a business owner, when your business hits a bump in the road, it can be tempting to supplement income with your personal money. However, this can lead you down an even more stressful path. And, when the time comes to pay invoices, things could go even more pear-shaped. To avoid this situation, always keep your accounts separate.
Don’t let invoices run late
It’s definitely a trend in small businesses that payments often run late. Sometimes these invoices can be innocently forgotten to be followed up, or a business owner could be too timid to follow them up.
It’s important not to fall into this trap because at the end of the day if you have provided a service, the customer must pay for that service. Although this seems like a sticky situation to be in, the solution to this problem is easily solved. Most of the time the payment has simply slipped the customers’ mind, and they simply needed to be reminded.
Start taking deposits
Have you noticed similar situations in which you end up doing work that never gets paid for? Or a client ends up backing out of a contract which you’ve already begun work? A deposit is a fantastic way to ensure you’re reimbursed for all of your work, no matter if the agreement goes sour mid-way through the process.
Are you having trouble keeping up with your accounts and running your business? We get it. Creating, running and growing a successful business is hard. Staying in control of everything you can’t see is even harder. If you need an accounting firm on your side, look no further than Toohey Reid. We are a boutique accounting firm directed by a team who specialise in thinking differently.
Think you need our help? Contact us today.
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