Escape Podcast: Cash flow is king

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cashflowCatch this week’s podcast episode here.  It is about 7 1/2 minutes long.  Here is what is covered:

For all of you who have just made your first sale, congratulations!  You should jump up and down and dance a jig at your accomplishment.

Very soon, however, you will discover that a closed sale does not equal money in your bank account.  Based on personal experience and that which I have learned from smart friends, I share some guidelines for making sure that you plan and contract for a stable cash flow in your new business.  They include things like:

  1. Carefully study your client’s financial terms, conditions and processes
  2. Plan contracts carefully, with payment milestones clearly identified and contingency plans developed if the scope changes
  3. Treat your accounts payable contact with ultimate deference and respect, lest you reap the wrath of an accountant scorned

I won’t share the gory details of what I am dealing with now in my hubbie’s business, but trust me that I am very hot on the topic of cash flow today.  Please share your horror stories, best practices and tips for how you manage cash flow in your business, or what every newbie entrepreneur should know about it.

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5 Responses to “Escape Podcast: Cash flow is king”

  1. Advice for new contracting entrepreneurs:
    1. Don’t spend all your income even when you have a lot of work in hand, healthy receivables and a good bank balance. Work can dry up in a week, people can be s-l-o-w to pay, and you may need funds to survive ’til the next payment.
    2. Keep on top of your receivables, and as soon as they’re overdue, send a friendly reminder. Sometimes invoices get lost and need to be resent. Be persistent in following up until you’re paid.
    3. Don’t take on more assignments from the same clients until they are current with their payments. Tell them “I’d love to do this, but the bookeeper side of me says I have to get paid for the last project first.” Good clients will understand this and admire your business sense. Anyone who resents this is probably not the sort of person you want to be working with.

  2. robert says:

    Cash is the lifeblood of your business. How you manage both in and outbound cash is vital to the survival and growth of your company.

    I am an International Credit Manager and what Pam says is 1000% correct. I deal with massive global corporations down to one man bands and both share the same problems. The only difference between the two is how many digits are involved. The underlying principles apply and both suffer as a result if they are too lax either way.

    Build your relationships with the customer’s Accounts Payable department. A box of chocolates here and there has never done my job any harm especially if it means your invoices go to the top of the “To Be Paid” pile.

    Never ever let me hear you apologise for asking them to pay you. If I do hear you say sorry, I will rant!

    All too often I receive calls in error from our suppliers and I recoil in horror when I hear ,”I am sorry to be a pest, but…”. Don’t let me remind you that you have provided a service and they have benefited, and therefore you have every right to demand payment.

    Don’t be sorry to collect what is due.

    Never issue a service contract without ensuring your payment terms are specific, (ie All invoices must be paid by the Customer within thirty (30) days of the date of the invoice.),
    and that your dispute process is also clear of any ambiguity. Your customers must know what payment terms they are on. 30 days is standard for all and for a startup must be the maximum you offer.

    As a startup I advocate you go for 50% cash on acceptance of the order and the balance in cash on delivery. If you can do business this way in the formative months of startup, then your chances of survival are so much better.

    The last thing you need as a startup is to have your cashflows restricted due to your customers trying the ‘dispute’ trick which entails them docking off the value of the dispute or refusing to pay at all. A clear and exact Dispute Process can help avoid this frustrating issue.

    An Aged Debt Analysis is vital. At the start of each new business month, prepare your Aged Debt Report. If you do not use one of the common SME accounting packages (like Quicken or Sage) that can produce this report at the press of a button, use Excel or Lotus to manually create your own.

    Don’t kid yourself that you will remember who owes you what. You won’t. Ink is the best memory. Create that Aged Debt report and control the lifeblood of your business. Mark off payments as they arrive and get deposited.

    Speaking of payments – deposit those cheques TODAY. Do it. It’ll take a minimum of 3 days to clear value to your account so get the cheques into your account ASAP.

    I could go on and on about how to deal with your overdue payments but it’d be rude of me to take up more of Pam’s space.

    If you want some of my knowledge, hints and tips about how vital the debt collection function is to you and your business, I can provide you some free advice. Just email me.

  3. DofAM says:

    Man, oh, man. The woes of collection and dunning. This is the Achilles heel of my company right now.

  4. Gordon Whyte says:

    The old saying “Cash is King” is so very true, the cashflow analysis / status is the most important tool that an entrepreneur can have in there arsenal, it does not need to be complex but should be planned out in detailed at least for 4 months and updated daily….take new customers on a pro-forma payment, or at least 50% upfront and the rest COD, this will protect you and start to educate your customer that you are serious on cash, you are a small company so the larger companies you work with will be used to this way of doing business. A sale is not a sale until you are paid, have your T and C’s sent with every quotation and again with your order acknowledgement ….well that’s enough from me on this topic..



    BTW great topic…

  5. Hi Pam:

    Great episode as always-having once worked next to an accounts payable person at a Fortune 500 company, I can attest that your advice about who NOT to aggravate in a slow paying corporation is sound.

    Came across the following discussion on the TechRepublic website about one of your favorite topics–and thought I’d share:

    How’s the book coming? 😉 (you TOLD us to keep asking you!)

    Hope all is well.

    Dave Rakowski
    Allentown, PA