Cash Flow Problems: How to Avoid this Common Killer of Value and Longevity

  1. Keep accurate & current books: Invest in good bookkeeping. Don’t view it as overhead. Make sure that your team (in-house or outsourced) is on-it and timely. Good bookkeeping is the basis for financial management. If you aren’t comfortable with accounting concepts your team must include someone who can help. Read more here on the accounting team you need.
  2. Transparency: Accurate books and timely financial reports are synonymous with a backlit dashboard and clean headlights on a dark night. They are the difference between safe navigation and a car wreck. A cash flow statement specifically applies here. Read more about all the financial reports you need.
  3. Use cash flow projections to plan: A cash flow projection describes your anticipated cash balance, with anticipated inflows and outflows, usually per month. It’s an estimate. But it helps illuminate the road ahead. Use a cash flow projection to plan for growth or anticipated challenges.
  4. Structure of payments: Using your contracting and billing structures to minimize or eliminate payment delays. Require as much advance payment as possible. Negotiate for this when you can’t require it. Break longer projects into smaller, billable chunks. Clarify terms around delays, cost overruns, warranties, refunds, etc.
  5. Complete work/deliver: Sometimes cash flow issues are due to services not getting completed/products not being delivered in a timely way. Deliver for your customers or you won’t be in business for long.
  6. Timely invoicing/billing: If you can’t get payment upfront, bill as quickly as you can. Don’t let this pile up. Delayed billing looks unprofessional and increased the likelihood that you won’t receive payment at all.
  7. Control costs: Track spending on a regular basis. Understand what projects should cost. Make sure that you are controlling those costs. Timely planning, negotiating terms, shopping the market, and clear budgets are just some of the very simple tools that help control costs.
  8. Marketing/Business Development: The roller coaster. Feast or famine. Many leaders invest in marketing when business is lean, but stop when work comes in. Don’t stop marketing when work comes in. Develop a way to deliver great service, while telling people about the service you offer.
  9. Build reserves (or lines of credit): Build and maintain a cash reserve. Some businesses are seasonal. Some projects require a significant front-loading of costs. Try to self-finance this. If you can’t, establish a line of credit at a bank. Be judicious in the use of this line of credit and ensure that you pay it off annually. But, ultimately, try to self-finance.

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Christian Muntean

Christian Muntean

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I help successful leaders and teams dramatically improve their performance. Guaranteed.