Show Me The Money!!
The Sydney Morning Herald recently published an article that quoted a very sobering statistic – “about 10,000 businesses going into administration each year and rising, according to ASIC national data”. Couple this with previous Federal Government figures that stated “81% of SME business owner were planning retirement (do they still have the funds to do this) in next 10 years”, and it is obvious practical and professional management and planning of every business is critical.
I have been talking this week with a business administrator and she mentioned that many businesses that she works with could have avoided their “troubled waters” by simply managing their cash more closely. There is an old adage in business that “cash is king”, and with the current economic environment, we would all be well served to heed this carefully.
So what can you do to improve your cash position? Here are a few ideas that might help:
1. Rigorously chase payment to keep debtor days to a minimum
2. Include penalty clauses for late payment in contracts and enforce them if payments are extended to show you are serious about collections. But do be diplomatic – you don’t want to cut-off a relationship with a long term client (or one with great potential) for a single slip-up in payment.
3. If the client has a problem making payment and you want their business long term, sit and discuss how you can work around the problem, but don’t leave yourself exposed.
4. Issue invoices regularly, not just at the end of the month.
5. Issue more invoices for smaller amounts – they are more likely to get paid than large invoices.
6. Get rid of poor performers – staff, agents, products or clients that are not performing should be reviewed. Clear out and free up cash for other opportunities or to have at hand in case of emergency.
7. If a client is “dodgy”, cut them loose. They will drag you down with them if they fail.
8. Sell for cash or on credit card instead of terms
9. Offer prompt payment discounts – I had a client introduce this recently and while the cost was more than credit card fees, the positive cash flow it provided made it well worth the cost.
10. Don’t automatically replace service contracts, insurance policies etc. I had an insurance policy come through recently that was paid by direct debit and could have easily been rolled over. Fortunately I checked, it had increased nearly 100%!!
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Business Roadmap provides practical business advice for small to medium sized businesses that are trying to overcome problems, or are trying to achieve their vision and full potential. Visit the Business Roadmap website for further information.
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