How profitable businesses can go bust
How can a business making plenty of sales possibly go bust, you may wonder? The answer is cash. Your cash can be in a surprising number of places other than where it belongs - in your account.
Cash is often the reason so many businesses fail. Profits can’t be spent until they are collected and if you don’t focus on collection, your business won’t last very long.
Cash is the lifeblood of any business and if it isn’t flowing at the right place at the right time, it can cause real headaches for the business owner.
Getting cash into the right place at the right time means having it in your bank account for more time and not that of others. There are many places your cash can be other than in your bank account, such as:
- Customers who haven’t paid you yet.
- Suppliers you have paid too quickly.
- Work in progress, i.e work not invoiced.
Let’s look at ways you could get the cash moving back into your bank account quickly.
The ones who owe you money are more important than those who don’t! It’s much easier to get money out of customers you have already sold to than new ones.
"Getting cash into the right place at the right time means having it in your bank account for more time and not that of others."
Many business owners feel uncomfortable about debt collection. If this is you, get someone else to do it. It may seem expensive but it’s much more expensive to have your cash funding other people’s businesses. To employ a part time Accounts Receivables clerk could cost as little as $200 per day. If done properly it could put much more than that in working capital back into your bank account.
Want more articles like this? Check out the financial management section.
Often, they get paid too quickly. You’ve heard the term ‘The squeaky wheel gets the grease” and unfortunately, many of us arrange immediate payment for a demanding supplier or worse still, we pay as soon as the invoice comes in.
This can play havoc with your cashflow. You need to use up all of the available terms and negotiate better ones if you can. It can pay huge dividends to spend a bit of time investigating other suppliers and better payment terms.
Work in progress
This can be a real hiding place for cash. If you have numerous jobs on the go , it can be very hard to manage them all to a point where they can be invoiced.
If you are trying to do this manually, or in your head without any process, it can cause you real headaches and cashflow problems.
A simple job management system can save lots of headaches. With a computerised system you have all of the information in one place about each and every job. You will know what work you have done for whom, and how long you spent on the job. You will be able to compare what you quoted on the job to what actually occurred. This puts you in a strong position to tighten up your quoting skills.
If you do a very quick estimate of how much money you have in outstanding customer debts, suppliers paid too quickly and work not invoiced, you may find it’s worth spending a little time and money getting these areas sorted out. It could put much needed money back into your bank account, not just today but for the future.
It could really reduce your headaches and sleepless nights worrying about cashflow. It could also reduce greatly your interest bill.