Big is not always beautiful!


It may seem strange advice to beware of winning big contracts. After all most small businesses dream of catching that biggee which will set them up for the future. However, many a great small business has failed because they won a big contract with a large corporation.

The biggest problem is cash flow.

Large companies will often demand slow payment terms, which means it can be several months between paying employees and suppliers your end and receiving payment for your services. It is important to remember that even if you have agreed 30 day payment terms the cash will usually come in quite a but later than that. This is particularly problematic in the current economic climate where banks are reluctant to lend money to tide you over the interim period.

If a large proportion of your business is geared to fulfilling one large contract you leave yourself exposed should the large company you are dealing with has financial problems themselves.

Also, if you have to neglect your traditional client base whilst you complete the large contract you may find you have no business left one the contract is finished.

Now, I am not suggesting you never bid for large contracts. What I am saying is go into the process with your eyes open. Put away your rose tinted spectacles and examine fully what winning the contract will truly mean for your business. Are you prepared to accept the risks as well as the rewards?

Finally, there are professionals out there – such as your accountant – who can help you, so use them.



Cash is king!

Piggy Bank

Cash is king! and managing it properly is one of the best ways of ensuring your business flourishes. However, many small business owners find it a real challenge to chase customers who are late paying – even though not doing so leaves them in a really tight situation with the bank.

A phrase we hear often is, “They’re a really good customer, so I don’t want to annoy them by chasing for payment”. Let’s just analyse that sentence for a minute. Why are these customers good for your business? Because they allow you to do lots of work for free? Surely, a good customer is one who appreciates your efforts and is happy to pay because they value you. If you have done the work you agreed with your customer, to the level they expected, why should they not pay the agreed price in the agreed time period?

So don’t be shy about collecting YOUR money.

Other problems we see regularly are:

–              Not setting payment terms up front

If you have not agreed when the customer should pay BEFORE the work is done, you will struggle to collect the money in a reasonable time frame. Make sure your terms of engagement/purchase confirmation clearly state when you expect to be paid.

–              Setting unnecessarily long payment terms

Don’t assume that you have to offer customers 30 or 60 day payment terms. Start from a position of offering zero payment terms and only offer extended terms if there is a commercial advantage in doing so. Bear in mind that even if you offer 30 day terms you will most probably be paid later than that. As you don’t know the financial position of all your customers the only safe money is the money in your bank account.

–              Not sending invoices out promptly

If you do not send out your invoices as soon as the work is complete, you automatically build a lag before you receive payment. Invoicing is a chore, but regular invoicing is vital to achieving financial stability.

The most common reason small businesses fail is because they run out of cash.

The most common reason they run out of cash is because they do not collect the money they are owed quickly enough, or allow debts to go bad.

Make sure you business succeeds by being cash collection savvy.

Fiona 🙂