Part 3.
Many businesses don’t understand the numbers and they fall prey to cash flow issues – even the profitable ones. It’s all because they are all too often: behind on the books, using poor, redundant or outdated systems and run on their bank account and perceived cash positions, which is a lot like running a business on “feel” or emotions (e.g. I feel like things are going well, I feel like we’re turning things around, I feel like… wait what’s happening?!”)
These three factors alone, lead to a higher risk of cash flow debt, which is a murderer of both new and established businesses. Okay, that was dramatic, but so is suddenly realising that your business is going under. Harsh but true. Let’s avoid all that by facing up to these cash flow sins.
Sin #3
RECEIVABLES – Letting customers pay you only after you paid your staff and suppliers.
Receivables – what comes first, the payment, or the product/service? Getting this wrong is a sin!
The correct answer is to have your customers or clients pay you first, before you have to pay your staff, expenses and so on. Unless you are a bank, you should not be lending your customers money – which is exactly what you are doing if you’ve set yourself up to provide that product or service to your customer… and then have to wait… and wait to get paid
Sin #4
Ignoring the PAYABLES gap between receiving money and paying out money.
This sin is related to the previous one so I’m going to keep it brief. If you are paying out money for bills, wages, tax obligations and loan repayments before you are receiving payments from your customers, you are headed for trouble. You are increasing cash flow pressure by extending the gap between paying out money and receiving payment – ouch.
Pay your staff and subcontractors fortnightly, not weekly Make their pay day approximately four days after the pay calendar ends.
Please use our Business Health Check to diagnose strengths and weaknesses and get personalised recommendations and expert advice.
Business Health Check – Up Up and Away Bookkeeping Software Consulting
