Monopoly©. One of the best ways to learn about starting a new business is through this board game. This life-like game not only teaches how to strategize but when to buy or when to sell as well as educates some of the fundamentals of your cash flow. Is it better to own one of Park Place or Boardwalk or the two utility companies and two railroads? Strategies differ, meaning it’s not always a straight answer. It might depend on how far you are into the game, or can you buy your opponent’s properties? When starting a new business there are more secure ways to help increase your cash flow with real money. Starting a new business is exciting and possibly overwhelming. Here are 5 tips to help you increase your business cash flow (with real money too).
1. DIY Your Payroll? – Get Professional Support
When setting up a new business it seems everything comes up as dollar signs in your mind. Everything seems to always be a high priority, but there might not be enough free cash to pay for services that you might do yourself. The DIY route can seem to be a great option because it is the less expensive and quicker method of getting something done. What happens when there is an error because the very fine print was not so clear? Now, you are not able to cover your payroll or be able to pay your expenses on time. This will end up costing you more money and time down the road in addition to losing the trust of your employees and vendors. One of the first people that you should hire is a bookkeeper and what you need to know for hiring your first employee.
Effective cash-flow management is the foundation upon which all your company’s financial and tax strategies. Financial management must be done properly from the very beginning.[1] Keep this in mind, even if it means paying a bookkeeper out of your own pocket.
A highly experienced bookkeeper is going to be an important investment in your business because they will pay you back in financial strategies and possible tax savings. In the future, this will help to save your company money and time with this initial effort. Do you need help finding the right person? Click here to schedule a call with us.
2. Creating Good Financial Habits
Good habits are important to start from the beginning stages of your new business. Your financial processes and systems should be set up from the beginning “with the end in mind” as Stephen R. Covey’s speaks about in the book, The 7 Habits of Highly Effective People. What are you trying to achieve? If you keep this in mind, it will make those healthy habits second nature. Regardless of a bookkeeper’s experience, it will be impossible to perform magic if the numbers are not accurate. Creating a rock-solid system will help you weather the unexpected such as instability in the market, health crisis, or personal emergencies.
“Chains of habit are too light to be felt until they are too heavy to be broken”
– Warren Buffett
3. Closely Monitor Accounts Receivable
Many startups experience negative cash flow because they don’t stay on top of their accounts receivable. To help avoid this challenge, ensure that your customers pay you in full or there is some type of payment plan in place. Accounts that are overlooked for too long end up being forgotten and you will not get paid. You have about a 90% chance of collecting receivables due in the first 60 days. But, did you know that once a receivable hits 90 days overdue, the collection rate drops to 50%? If the receivable is open more than 120 days, the average collection rate drops to less than 20%.
Looking at the numbers on a monthly basis will help to minimize accounting errors and ensure that you are being paid on time. On the flip side of the coin, if you need assistance with collections, it will be easier to track payments when cash flow is reviewed monthly.
4. Get Paid Upfront
No one likes to have to chase a customer down for an unpaid (or overdue bill). One of the best ways to avoid these awkward situations is to have your customers pay their bills upfront. Paying bills in advance will help with the negative cash flow. If they don’t want to pay the entire bill in advance, have them pay a portion of the bill or break it into a payment schedule. The advantage of breaking payments up over a limited amount of time is the customer is aware of the time frame and dollar amount that is expected. The advantage to business owner is the flow of money coming into the business will be streamlined as well as knowing when to expect the payment. Additionally, there should be a penalization for late payments. The payment structure should be clearly stated on every single bill. Most importantly, these late fees should be enforced to ensure that you are not taken advantage of by your customers.
Here’s a bonus tip – payments are viewed differently if you’re in the service or product business. In many service businesses, services are performed, then the bill is sent. Indeed, law practices are mostly set up this way. However, in product-based businesses, payment is made first, then the products are provided. You wouldn’t think of walking out of a bookstore or the supermarket with your stuff without paying for it first. Service-based businesses should strongly consider moving to a payment-first model as it will improve your cash flow dramatically.
Moreover, what’s the business owner’s largest obstacle to creating a payment-first model? Their mindset. This might sound crazy, but it’s the number one objection we’ve heard from clients, prospective clients, and our larger network.
5. Maintain A Cash Reserve – Money In Your Pocket
Just about every startup will experience revenue shortfalls at some stage. Your company’s success will really shine through to show how you manage the leaner times. The best way to protect your company from the unexpected or emergency is by having a cash reserve or even access to a line of credit. Creating that “cushion” to fall back on will allow the business to survive or potentially even excel. Think about companies that went under during COVID versus the ones that prospered. Nothing will kill your team’s morale—and your company’s growth—more than finding yourself unable to cover payroll. To keep the money rolling in, consider reading Robert Kiyosaki’s book, Rich Dad, Poor Dad, which speaks about the Cash Flow quadrant helping to strive to try and work less and earn more.
Don’t Stop the (Cash) Flow
All the vision and passion in the world won’t keep your startup afloat if you fail to properly manage your cash flow. That said, you don’t have to be a financial genius to keep your revenue flowing freely—you just need the proper systems and support. We can help you grow a sustainable and successful business not just for today but for years to come. Contact us at (305) 702-8250 or email us at [email protected] to assist in your real-life Park Place!
[1] Indeed, the IRS has stated that it will be engaging in more detailed review of small business tax returns and filings. If you’re taking deductions for your small business, it’s YOUR responsibility to prove the validity of the deductions. Keep those receipts!