When it comes to cash flow issues, it often boils down to one very important factor: timing. When does a business owner get paid? When do they have to pay expenses?
Many business owners run their businesses with their fingers crossed that they'll get paid soon and also have enough cash to cover every expense. But unfortunately, they often learn the hard way: Hope is not a cash plan.
Getting Paid for Completed Work
Many business owners default to 30-day terms rather than considering when expenses incurred for the project are due. There is no required term length — owners can set the terms of when they get paid.
One way is to ask for a deposit. Some charge a percentage that covers overhead; others ask for 25% down with the balance later. A deposit gives a business owner cash to start a job.
Another option is offering a discount for paying the entire cost up front. It doesn't have to be huge, but in this economy many customers will jump at any chance to save — and owners get paid sooner.
Finally, by establishing and enforcing late penalties, owners can encourage timely payments. Rather than thinking of late fees as a penalty, think of it as passing costs along — if a client hasn't paid, why should the business absorb the extra fees?
Extending Payment Terms
Owners have more authority to extend payment terms than they realize. Negotiate with vendors — many will allow 45 or 60 day terms instead of 30. Use credit cards strategically to delay when cash actually leaves the bank (paying balances on time, of course).
Reduce expenses regularly. Review at least quarterly and evaluate whether each cost's value outweighs the price.
Conclusion
The timing of cash coming in and cash going out is essential to know — when and how to get paid, and when to pay expenses.
Disclaimer: The information in this post is intended for general guidance purposes. For advice specific to your business finances or taxes, consult a licensed accountant or financial advisor.
