Stronger cashflow makes your business more valuable. It also has the major side benefit of helping you pay your accounts on time, including your taxes. That means no more frantic scrambling for cash when people want to be paid, because your cash is already in. But I see so many small business owners in New Zealand whose cashflow is preventing their business from growing and realising its full value.
Let me tell you the major cashflow mistakes I see small business owners making:
Not sending out invoices on time. What’s this about? Why do a significant number of my clients invoice late? Invoicing can seem like an onerous chore, but it shouldn’t be. Maybe get onto Xero and make it easier, or take time to set up systems that process your quotes directly into invoices when the job is done.
Invoicing 100% on completion. This is a killer. You take on all the costs, spend months doing the job and then you need to wait for sign-off before you can send the invoice. Then you potentially wait another few months to get paid. Chunk up your invoices so you get some money up front and make sure only 10% or less relies on sign-off. Just enough to make you chase sign-off, but hopefully not enough to mess up your cashflow.
Chasing outstanding accounts while asking for work. When you’re a small business, you can find yourself simultaneously chasing an overdue account from the same person you’re working with on a new job. You can end up asking for work from that person, while also chasing them for money. Not great. Early in the relationship, try to make contact with the accounts department so you can hassle someone else. Alternatively, pay someone else to chase the account for you.
Pricing too low. You would be astounded how many Kiwi business owners are under-pricing their services or goods, usually because they don’t feel they can increase their prices. You might think your market won’t accept higher prices, but you should try to find a way to test it. Even a 5% nudge in your prices will increase your cashflow and improve your business’s value.
Continuing to deal with customers who are habitually poor payers. Don’t do it. Customers who don’t pay the bills cost you time, money and stress. Let them go and focus your energy on finding better customers.
Bigger companies typically have systems in place to prevent all these problems, but small business owners can easily get caught up in one or even all five of these mistakes. Sort your cashflow out and you’ll be one step closer to building a sale-ready business.