First and foremost, bill clients as soon as possible. It is very typical for a small firm to lack the procedures or systems necessary to generate and send invoices in a timely manner (see the next segment for more). Again, this seems improbable, given that we are completing the labor in order to be compensated. However, it is quite possible for the persons in charge of delivering this information to the billing people to be too busy or not have enough organization to get it to them in a timely manner.
Making the quickest payment deals with consumers and the slowest payment deals with vendors and workers is the second phase of reducing or stopping a regular cash flow problem. You should try to avoid paying staff more than twice a month if at all possible. This is always a problem for contractors. If you have to pay weekly, notify them before they start that the first week will be kept back, effectively buying you a week. It will be beneficial, I assure you.
The third section is about credit. If your company is eligible for a credit card, apply for one. This enables you to purchase necessary items (that you can afford) that may arise amid a cash flow crisis. Better yet, if you have no alternative but to cope with 45-day or longer customer payments, try to obtain a company line of credit. If you plan on selling to the government or providing commercial services, this is necessary. The wait times for these individuals are typically 60 to 90 days.
Do you understand that there are mistakes you may make at various phases of your business' growth that might slowly kill it for months or even years if you don't watch out for them?
These blunders really exist, and they aren't limited to inexperienced businesses. Many working firms, especially ones that you may consider to be “successful” because they've been around for more than ten years, are still making them... and probably losing a lot of money and/or squandering a lot of time in the process.
Although several of these major and stealthy blunders appear to be geared at service organizations, they may be applied to practically any industry. I've done my best to demonstrate this using the lists below.
Underestimating Project/Service Time- This is a significant one, and it applies to both service and product-based businesses. This is the bread and butter of a service company. You will get burned if you do not estimate your time to do each and every service in your repertoire. There is nothing you can do about it but bite the bullet and learn from it. The simplest way to estimate time is to perform it yourself or have your best employee do it once, then add a fudge factor on top of that. Time becomes a concern with logistics for product companies, so be cautious!
Not knowing YOUR company's numbers/setting prices incorrectly—Notice how I capitalized the term "your." It's a typical blunder to use a competitor's pricing as a benchmark without first understanding why they use those figures. Consider the nightmare that will ensue if you take a competitor's price, reduce it by 10%, and then begin selling. What if the rival has a poor pricing strategy and is barely profitable, if not losing money?!?! What if your expenses exceed theirs?!?! You can utilize competition as a starting point, but not as the sole focus of your approach.
Different sectors have their unique cost variables, which you should be aware of when pricing your project or product. When you're pricing things, keep in mind that the price you paid for a product isn't the only cost to consider. The cost of your labour and supplies for service is simply a small part of your hourly fee. Employees are more expensive than their salaries, and not every employee is included in your labour costs. Every business must pay for insurance. There are numerous overhead expenses that must be factored into your price. Oh, and the quality factor is a key one that many people overlook when calculating their pricing. What you include in your pricing as "standard services" or "standard product features," as well as job site etiquette, in-store service, and warranties, are all important considerations. In the next segment, I'll explain why.
Not Charging for All of Your Time & Costs- While this may appear to be a silly remark to some, I'm sure most business owners will admit to giving away a bit too much of the farm at times. There's nothing wrong with showing you care by providing a little more now and then. But, in any case, that's not what I'm talking about. What bothers me is when people put a lot of effort into their work, products, or stores but don't pay for it. Let's imagine you run a service business and your competitors don't provide a particular standard service that you do. To steal a project, you can't simply undercut their price; you must include that expense in your rate and promote that it is included in the price up front. When stores, for example, put extra personnel on the floor for customer service but don't charge for it, they are undermining themselves. These things cost you money, and they cost your competitors less money when they don't do them. Put out superior service and then undercut your competitors' prices, and your competitors will only have to wait a few moments for you to fall flat on your face before swooping back in.
As a business owner, you must believe that you are giving valuable goods to your customers that are worth paying for. If you have the opportunity to explain why your pricing are higher, take use of it. They are most likely price shoppers if they don't appreciate the fact that you include stuff that others charge extra for afterwards or that you treat them better. In any case, you don't want them as frequent clients. Have faith in me.
Not Getting Paid Quickly Enough- Ah, yes, the dreaded cash flow problem. This problem can be fixed, prevented, or at the very least made to be not as awful as it may be as long as you are actually producing enough money to pay your bills. Here's how it works:
Failure to Establish Solid Systems and Procedures- Too many procedures (often known as "red tape") is one of the main reasons why people start their own firm. Having no procedures or systems in place is, unfortunately, not an option. Business owners must find a happy medium, depending on the sort of industry, or chaos and the unknown would result. Billing, collections, payroll, human resources (interviewing, hiring, vacations, benefits, job responsibilities, and so on), manufacturing, operating equipment, repairing equipment, inventory, sales calls/visits, and logistics are just a few examples of where procedures or systems are required.
Even a one-person show requires certain administrative procedures. This will make it easy for you to hire temps and subcontractors and keep track of their work. You will be responsible for causing many huge issues as your company expands if you don't have at least a watered-down version of a system or procedure in place to accomplish everyday tasks. I cannot overstate how critical this is when hiring new personnel. I'm sure you've heard it before, but I'm a strong believer in having an employee handbook, even if it's just for one person. It's astonishing how many problems people can cause for business owners simply because you pay them.
Spending Money on Advertising Just to Say You Advertise- I'd rather see my clients not advertise than spend money without measuring the results. There's no use in running a marketing campaign if you don't have a system in place to track how effectively it's performing. Another squandering aspect of marketing that many individuals make is failing to track their previous successful initiatives. I'm not sure why some individuals believe that simply because a $400 monthly ad worked successfully for one busy season, it will automatically work every year after that.
Spreading Yourself Too Thin- This is a common blunder committed by all business owners. The goal is to recognize when you've reached the stage of "wearing too many hats" and seek assistance. The key is to be aware of your capabilities and to be able to recognize when you are not undertaking tasks that require these abilities. You can't get caught up in day-to-day operations if you're the top salesperson in the organization. If you do, your sales will suffer, and you will finally have no operations to worry about. Consider the following to see whether you're overworked: Did you truly go into business for yourself to work 80+ hours a week?
Not Getting Help Quickly Enough- Set targets for when you should hire someone to fill in for you where you are lacking in knowledge. A corporation can die if it does not receive assistance or if it waits too long. The majority of people who start a business do so because they have a strong technical or sales background. If you know how to create a widget the best way possible, your strength lies in production, and that is where you should focus your efforts. Hire an outside company or a consultant to handle sales and marketing until you can afford to hire someone full-time. Don't pretend to be someone you're not in your organization. It will simply stifle your progress.
Legal concerns, accounting/bookkeeping issues, and everyday operations issues are the three major issues that people desire to face themselves but are usually the least knowledgeable about. These three areas are likely to be your weakest link, so if you don't have a spouse who is knowledgeable in these areas, be prepared to seek assistance as soon as possible. It's best if you do this before starting a business.
Although it is a good idea to search for these issues at any time, the end of the year or season is a fantastic business period to ensure you are not making these mistakes. Take the time to remedy these issues, or create the time to do so. Get help if you don't know how to fix the difficulties. some help. If you really don’t have enough time to either figure out if you have these issues or know they are there and can’t break away long enough to do it right, then get some help.