Episode Transcript
[00:00:00] Welcome to another episode of financial snickings. Today we are continuing our financial reporting series for entrepreneurs and we are going to be talking about cash flow management. This is something that is incredibly important to business owners as you know. Cash is king. Um, so we're going to talk about maintaining a positive cash flow, including invoicing practices, payment term negotiations, and proactive cash flow forecasting.
So for small businesses, maintaining a positive cash flow is Key to having sustainability and growth and making sure that you manage this really involves having sound practices when you're invoicing and doing some negotiations with your vendors and keeping track of your forecasting. [00:01:00] So, we're going to talk about some essential tips on how to keep your cash flow healthy and thriving.
So I, one of the problems that we see with small business owners, and this happens quite often is with streamlining your invoicing process. There are times when we have worked with small business owners that their invoicing is so convoluted that they tend to avoid it. And what happens when you don't invoice your clients is you end up with a cash flow problem.
So what we can do. Is make sure that you invoice timely and accurately. It is the 1st step. Make sure you do it on a regular basis. It needs to be done on the 1st of the month or the 15th, whatever it is, it needs to be done regularly. And when you systematize this. It takes it off your plate [00:02:00] as being one more thing for you to do.
So what we have found has been very successful with small business owners is when you close the deal, when you make the sale, be very upfront about what payment terms are. What the due dates are and anything that, you know, the breakdown of the charges and to avoid any misunderstandings right from the beginning.
This is the first step in your relationship with your client. Show invoicing, shows them that you organized, even if you are not doing accounting work for them, if you are a creative and you're making something or you're doing a marketing campaign, if this part of your business is done well, instills confidence in your clients.
That you know what you're doing. It also helps you with positive cash flow. So, [00:03:00] there are some schools of theory on this. What we want people to do is to set up automatic payments. Have, there are, there are so many systems out
there now including QuickBooks Online where you can input information, the payment information at the time when you have a contract with the client and then you can You can use that payment information each month when you bill them, and there's multiple options of things to do, but this will help your cash flow.
You can always depend that you're going to run this invoice on the 10th and you're going to get that money on the 10th or the 1st, whatever day you decide. Other, um, other options that you can do are credit cards. Yes, there's fees involved with them, but it is more costly not to have the money in your bank.
You can also implement late fees. If for some reason you don't have your clients on automatic [00:04:00] payment or you don't have them on a credit card, you can implement late fees. Make the late fees very painful so that they don't want to incur them. And again, I can't emphasize enough, but set up these clear payment terms from the beginning.
Talk about what you, what they can expect, what you are expecting from them. Um, if you are so inclined, if you are working with maybe a larger company who is asking you to, uh, wait for payment for 90 days. You can actually ask them, say, you're going to offer a discount if they pay you sooner. This I've seen with our clients who work with bigger companies like Bloomberg, Verizon, Amazon, Google, any one of those, you can actually negotiate with them and they will take advantage of those discounts.
And you have cash coming in and you're not waiting [00:05:00] 120 days or 90 days for your money. Also, the other thing you can do to help with your cash flow is negotiate terms with your suppliers. Your vendors are very happy to also get paid faster and you get to pay them less. That helps with cash flow. So how can we be proactive about this cash flow forecasting?
One of the things you need to do is regularly monitor and analyze your cash flow. So what this means is not looking at your bank account because your bank account will show you stuff that's happened after and is not conclusive evidence on what's going on. What is, is your profit and loss? Your profit and loss is going to show you the income and expenses and it will identify trends that are happening and it will help you to anticipate potential challenges and help you make informed decisions.
If [00:06:00] you run your profit and loss by month and you can look at all the money that has come in, you can also future project this into the future. So, that leads me to the second part of creating that cash flow projection. So you develop a cash flow projection on your historical data and what you know that future business decisions are going to be made.
So if you know that you have a new client coming in. Next month, and they're going to be paying you 5, 000 a month. You can project that your cash will increase 5, 000. Now you might have to hire somebody to work on that client. Okay. That's going to be an added expense. So you can start to work through what your cash flow projection is going to be like.
I also highly recommend. That you build in a cash reserve. There is a reason [00:07:00] why every money guru out there tells people, whether it's your personal finances or a business finance, build a cash reserve. When you build a cash reserve, when things happen unexpectedly, you're ready for it. So this cash reserve should be between three and six months, and it serves as a cushion to help you navigate temporary situations and challenges that will cause disruptions in your business.
If you don't have this reserve, so small business owners, you need to master cash flow and it is a critical skill for creating a sustainable and growth minded company. You need to implement streamlined invoicing processes, create standard payment terms and engage in proactive cash flow [00:08:00] forecasting and revisit it often.
And if you can navigate these complexities of cash flow management with confidence, you will be ahead of the game. And remember, positive cash flow isn't just about managing finances. It's about securing the foundation for a thriving and resilient company. If you want to talk more about cash flow forecasting, head over to my website, firststepsfinancial.
com and click on the let's chat button and we can talk more about standardizing your invoicing processes and planning for cash flow. Looking forward to talking to you soon
