Since I started editing Flying Solo one issue has emerged as the number one thing the small and micro-business owners in the FS community are really struggling with: cash flow. And lord knows I feel their pain. I remember those days of bad cash flow all too well.
- The stress of trying to find money that wasn’t there in order to pay suppliers and staff.
- The cannibalising of funds set aside for BAS payments in the hope that by the time BAS time rolled around, we’d have built that account back up to appropriate levels.
- Having my mum come sit with me and show me how to move money around so the things that HAD to be paid on time (wages!) could always be covered while the things that could wait … waited, but not too long.
Back then I prided myself on the fact that we were never more than a day or two late to pay anyone – but still, it was incredibly stressful and I lost a lot of sleep from all the worrying I did.
So what’s the difference between now and then for our business?
Well we’re more profitable. And that definitely helps! But that’s not the reason we’re in a good cash flow position.
Back in the day (when I was doing all the books), we invoiced monthly because that was all I could manage. So say it was May and we finalised a job on May 2nd. That job wouldn’t get invoiced until June 1st. If that client paid on time (14 days), we got the money for that job on June 15th. That’s 44 days between the job being finished and us being paid for it.
And that’s if the client paid on time.
If they didn’t, who knows when they would have got a reminder. It really depended on how desperate we were for cash. Some months I wouldn’t send a reminder till I did the invoicing for the following month! Crazy in retrospect but I suspect this is the same for many business owners out there – when you’re trying to do everything yourself, you prioritise the most urgent thing at the time. And usually the most urgent thing is getting client work done.
So what changed?
Well we got a Jan. Jan is Ant’s mum and here are the two things she does for us that make all the difference to our cash flow:
1. She sends out invoices every single week
As soon as a job is finished, we close it in the system. And once a week (instead of once a month), Jan invoices out all the jobs closed from the previous week.
2. She chases overdue invoices every single week
Now, as you can imagine, this is not a fun job. But it’s a necessary job because:
- Invoices do go missing so it’s important to check that they’ve been received.
- When someone is a position where they can’t pay all their bills and they’re trying to decide which bill to pay, they pay ours. Because frankly, no one wants to get a call from that lovely Jan from Swish Design.
My mum (yep, we employ both mine and Ant’s mums in our business!) does our accounts and she is constantly amazed at how few invoices we have sitting in the 30+ day range. I can’t even begin to tell you how amazing this is for our business operations and the freedom it gives both from a stress point of view, but also from an operational point of view. (It’s been my experience that when a business is experiencing cash flow stress, they tend to make decisions based on scarcity and fear.)
But I realise not every business has a Jan. So what can YOU do to ease cash flow stress?
Put these three steps in place:
- Set up systems in your business that allow you to invoice a job as soon as it’s complete.
- If you’re doing jobs that are high value (like say, for us, a website), charge a deposit and break the total fee into at least two progress payments if not three.
- Chase overdue invoices immediately. If you are not in a position to do it yourself then pay someone to do it for you. It will be the best money you’ve ever spent on your business. I guarantee it.