"You can have the most amazing invention, fantastic product, offer the most outrageous customer service or possess the most professional practice ... but run out of cash and you're surely S.O.L.!"
Rule #1: In business, Cash is King!
Rule #2: When in doubt about the future, refer to Rule #1.
Rule #3: "If customers think they can get away with late payments... they will!
80% of business failures are directly related to poor cash flow and insufficient working capital.
For the purpose of clarity, following are some terms in the "Cash Flow Pictionary":
? "Ideal" Cash Flow
"When our customers pay us for our products or services when they are rendered or sold!
? "Real World" Cash Flow
"The time between pleadings with anyone that owes us money to pay as rapidly as possible while we delay paying our creditors as long as possible!
In this article, I'm going to address paying those expenses and bills and what not with that money you worked so diligently to collect :-)
In the game of Business and as it relates to our current topic, Cash Flow, there are several aspects that have to be addressed to expect a successful outcome and win the game; items like providing the service or product, customer satisfaction, quality control, personnel, billing, collections and many others including Payables!
As important as each of these are, there is probably no one more important than paying one's obligations. Paying them fully and paying them on time! The down side of not paying one's obligations, or paying them extremely late, as we have previously recognized, can be nothing short of devastating! You might recall a few of these;
- Losing valuable trade discounts
- Employees and supporters distraught, some even leaving us!
- Financial and personal embarrassment!
- Suffering personal humiliation and possible trauma of potential bankruptcy!
Payables and Expenses1. Communicate with your suppliers and do it honestly
You are not the only business they work with and not the only one concerned with cash flow.
2. Carefully consider vendors' offers of discounts for earlier payments.
Just remember, the devil is in the details.
3. Pay bills on time, but never before they are due.
When experiencing cash flow issues, not following this rule can cause fatal consequences'!
4. Seek better payment terms from suppliers and banks.
If you can get better credit terms, it is essentially as though you borrowed money interest free.
5. Spend as little as possible and don't purchase what you don't need
Sounds Trite? How is it that most businesses initially fail at this planning stage?
6. Choose the bills you'll pay carefully.
Paying the smallest and letting the rest slide is bad business, the opposite holds true as well though.
Caution and dedication here is like practicing preventative medicine!
7. Keep all expenses as low as possible, constantly review and reduce!
It will sneak up on you and suck the O2 out of you business!
8. Keep a tight control on inventory.
The amount of inventory, particularly a service operation, can add up quickly and significantly!
9. Use electronic funds transfer to make payments when possible
Retain maximum use of your funds as long as possible.
10. Don't always focus on the lowest price when choosing suppliers.
Flexible payment terms improve cash flow quicker than bargain-basement prices!
11. Establish a line of credit with a bank
If you assume from the very beginning that someday you will be short on cash, arranging for a line of credit earlier rather than later is always a good thing.
12. Use your personal credit card to finance purchases
I personally don't recommend this as a first line of defense, however...
13. Consider getting an expert to watch your cash flow
This may well be some of the best money you'll ever expense.
SUMMARY...... There are numerous ways to address Cash Flow. These are just a few of the most obvious and the simplest.