Unreliable cash flow can be a major stressor for a business owner. The goal is to optimize the timing of payments and receivables. If not done correctly, you run the risk of jeopardizing your business longevity. Here are a few startling statistics from levelset.com.
"1/3 of business owners wait more than 30 days to be paid"
"83 days is the average time to get paid in construction"
"34% of owners had to dip into their personal savings to get by"
"32% of owners have paid people after their pay day"
Here are 4 tips you can implement now that will optimize your cash flow (and lower your stress level):
1. PLANNING
I can not emphasize this one enough. Pre-planning saves you so much worry in the long run. When you begin the process of project planning it becomes easier and faster each time as you are able to use previous project plans as a starting point for new projects. Having a sound project plan allows you to see when certain costs will be incurred so you can plan for them ahead of time. Once you have all of your project plans laid out, you can roll them all up into one financial forecasting tool. Ask me about clear and easy to use templates to start planning your projects so you can gain this valuable insight.
2. CONTRACT MANAGEMENT
(You will see that each of these tips build on one another.) Once you have a project plan you can establish agreed to milestones with the customer and set a payment schedule. This way the customer is paying you iteratively as the work is accomplished and as your costs are incurred. All of these details should be spelled out in your contract. Not only will you be paid as expected, if utilized as a tool, the contract can stipulate how you handle change orders, unplanned costs, and overages. Bonus Tip: Add incentives for early deliveries and penalties for late payments.
3. COMMUNICATION
Now that you have a project plan and a payment schedule set with your customer, its all about communication. You must establish a routine of communication that is going to get you paid. The best way to achieve this is to have regular and predictable communications with your customer. The customer should always know when they will hear from you, what information you will be providing and how. Then, everyone's expectations are managed and in alignment. And finally, you are getting paid on time. Ask me about a straight forward and professional looking template to use that will impress your customers.
4. GET HELP
Allow me to explain. The Pareto Principle (also known as the 80/20 rule) means that it is likely that you are spending 80% of your time on activities that make up 20% of your income. You shouldn't be spinning your wheels on activities that are outside of your expertise. If you are spending a lot of time trying to "figure things out" then you may need to hire someone, even if part time or on a contract basis. The return will be worth the investment once you are freed up to focus on the 20% of activities that make up 80% of your income. And that also means less time at the office!
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