Remember if you have fulfilled your part of a contract with a client, and the agreed date for payment has passed, that money is yours. You shouldn’t feel embarrassed about chasing for it if they are slow in paying. After all your organisation is not a bank – so your customers should not expect you to behave like one.
To help you ensure you don’t have a large amount of outstanding payments a) have a clear contract with customers detailing your payment terms b) invoice promptly c) chase payments that are overdue as per your terms
Many businesses have financial problems because they do not review their prices regularly. Even though their costs are increasing they find increasing their own prices difficult – and so their profits continually decrease.
They might then have to increase their prices by a large amount in one go to catch up.
It is good business practice to review your prices annually and to increase prices by a small amount to keep up with inflation.
When your business is facing challenges, and there are many factors influencing it that are not under your control, having a clear plan for your business will help you to keep focussed on your goals and take control of the factors you can influence.
Businesses that struggle often have no clear direction or strategy, and so their growth, stagnation or decline is determined not by the owners but by the winds of fortune.
Let’s all plan for success in 2021 and put the challenges of 2020 behind us.
Also, make sure you are up-to-date on any Government help you can take advantage of to help your organisation survive. Many local councils have extra help available and there are grant organisations who want to help in specific areas.
Some well directed Google searching could pay dividends. But be careful not to overextend your commitments to repay later
I thought it would be useful to give some tips to help your business weather these strange times. We have been in lockdown for several weeks now so you may well be looking at how your business may begin to move back to business as usual – or as close to usual business as the easing of lockdown measures will allow.
It is more important than ever to keep on top of your cash flow. Try to do a cash flow forecast (you can download a free guide on forecasting from my website) and predict when critical dips in your bank balance might happen.
It is worth remembering that a ramp up in business out of lockdown will often mean a further dip in your finances. For example, you may need to buy stock or fully fund staff before sales increase.
Claim as many of the government aid measures as you can.
If you are in retail, hospitality or leisure you should already have applied for the £10k or £25k grant and rates relief. If you have not already done so make sure you apply for this aid.
If you are a VAT payer you can defer all VAT payments due between 20 March and 30 June for VAT returns ending February, March and April. You must submit a VAT return as usual but cancel any automatic payments so the money due isn’t taken. If you are a net VAT reclaimer just carry on as usual.
If you have had to cease, or reduce, trading for the duration you will probably know about the job retention scheme. The portal is now fully functioning so get your claim in as soon as you can. Remember furloughed staff are not allowed to do ANY work for you whilst they are furloughed. However, the government are talking about an adjustment to the scheme to allow for a phased return to work of furloughed staff.
There are three government backed loan schemes available so check them out to see if they are appropriate to your circumstances: the business interruption scheme; the coronavirus future fund; and the Coronovirus bounce back loan (you cannot apply for this loan if you have already taken advantage of the business interruption scheme loan).
In these turbulent times it is more important than ever to be on top of cash collection. However, many small business owners find it a real challenge to chase customers who are late paying.
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.
For many businesses the last few years have been really tough – and the next couple may be just as challenging with continuing uncertainty around the Brexit decision.
If you own a service business there are things you can do to make yourself as resilient as possible and I include my take on the most important ones below:
In a service company the level of customer spend can be quite high. For this reason it is vital that you review the level of credit you are prepared to give clients and stick to it. My payment terms require that clients pay either by monthly standing order or on date of invoice. Even if they don’t pay immediately at least I can chase from the earliest possible point.
Ensure you invoice promptly after work is completed, and, if the job spans several months, agree stage payments with your client so they don’t owe you more than 1 months worth of work.
Bear in mind that none of us really knows what is going on in another company. A seemingly sound company can be on the verge of collapse due to cash flow problems. Credit checking services can help you assess the credit worthiness of a business, but remember their information is out of date to some degree and they don’t pick up the full picture. The only way to ensure you don’t get caught out is to collect the money owed to you as quickly as possible.
Remember, even the banks are reluctant to be banks at the moment – so don’t fall into the trap of acting like one!
A key way to thrive is to provide the BEST service you can and be as close to your customers as possible. I see many service providers who think they can get away with average service and who assume clients will stick with them regardless. This is an arrogant assumption which will lead them, quite rightly, to lose good clients to much more customer orientated businesses.
For any business, but particularly for service companies, the relationship you have with your clients is king. A client who knows you well, and believes you are giving him the best, most focussed service available, is unlikely to shop elsewhere, even if he has the possibility of getting the service ‘cheaper’.
Build your referral network
We all know that people buy from people. You are much more likely to engage a supplier who has been recommended to you by a trusted advisor/contact than one you have met fleetingly at a networking event.
For this reason I think it is important to build up a network of people around you who:
– although they are not competitors to you, have the same types of customers as you do.
– understand exactly who an ideal client is for you so they can spot one when they meet them
– understand exactly what you do and the problems you solve for your clients
– are people you would be happy to refer to your contacts so the relationship is mutually rewarding
If you have a strong network you can be much more focused in your marketing and will be much more likely to get the type of new clients you need.
Clearly groups such as Met Walking are a great way to build a strong network of like minded people!
Following on from my previous post I thought I would concentrate on cash flow as a particular area you need to focus attention on.
Many business owners don’t know how much money is in their bank account on a day to day basis and look at their accounts only once a year, so the idea of forecasting for the future leaves them cold.
Many businesses of all sizes fail because they do not have the foresight to ensure that they avoid making poor decisions, or react too late to changing circumstances. In particular, in not doing cash flow forecasting (at the very least) these business owners are putting their businesses at real risk.
Forecasting forward can help ensure you don’t suddenly run out of money. If things are going badly you at least have forewarning of when you MUST get some money in and have time to do something about it. You can then use your forecast to help the bank – or any other parties you are hoping to secure funding from – understand your business and who investing in your business is a good bet for them.
Many owners/managers of small businesses (and larger ones for that matter) struggle to understand their business finances. This lack of understanding can make it very difficult for them to make the right decisions for their business.
Now, I am sure my accounting colleagues would not mind me saying that, most accountants make lousy entrepreneurs. We just lack the creativity and drive which makes entrepreneurs so effective at getting new business ideas off the ground.
So why should entrepreneurs/business owners be great accountants?
Each role requires an entirely different skill set and way of working and, indeed, a different personality type (if you are familiar with DISC profiling). So don’t be shy about admitting that you are stuggeling with the money side of your business.
Many business owners do not seek the proper help and guidance, or have the right level of financial information, to help them make decision. To me this is a huge mistake which can lead directly to business failure. As a responsible business owner/entrepreneur you do not need to be a trained accountant but you do need to have enough knowledge of financial issues to run your business effectively.
So what do you need to do to get this knowledge? Well, for starters:
Ask lots of questions of your accountant about why the figures are as they are.
If you only receive figures from your accountant once a year, several months after the year has finished, this is not enough! You need to have regularly updated financial information to make decisions on a timely manner.
Have a properly thought through profit and loss and cash flow forecast so you can manage your cash – and make sure it is regularly updated for what has actually happened.
Don’t just be happy with knowing how much you have sold in total and the margin on this total figure. Ask how you can get information on individual customers, products and projects so you are clear which activities are profitable – and which not.
It is not good enough these days to just shrug and say “Well, I am just not good with figures”. You started your business to make a living for yourself, and any staff you have, and you owe it to yourself, and them, to have a good handle on the money in your business.
One of the most common problems I come across amongst SME business owners (and, in fact, businesses of any size) is deciding how much to charge customers for their products or services.
It’s an important problem to solve as it can make a huge difference to how profitable a business will be. Price too high and you won’t find customers. Price too low and you won’t make money – and perhaps put off potential customers because you are too cheap.
You may well ask how can a product or service being cheap put off customers? Well, if you are advertising a high quality offering to customers, but pricing too low, they will not trust that it actually is high quality.
The place to start when reviewing your pricing strategy is with your costs. If you don’t know with enough detail where the costs in your business occur – as a direct result of producing your sales or as overhead expenditure – you will not be able to price effectively.
As we know, to be profitable a business must at least cover its costs. So knowing all the business’s costs will help to ensure that products and services are priced in a way that covers these costs.
I have come to think that online learning is a great way of sharing expertise to a wide audience. The tools available to help create an engaging and effective learning experience are getting better and better.
If, like me, you have been in business for a long time and now feel you have want to share your knowledge with an audience wider than your immediate client base, how about having a go at creating your own online course?
Personally, I use a tool called Easygenerator. It is very easy to use and you can upload videos and audio files as well as the usual written content. You can try it out for free and see if you like the quiz templates provided and the format of the courses.
I have certainly enjoyed playing around with what I can produce for business owners who need inexpensive help in key areas of their business finances.
As business owners we need our businesses to make money.
In my opinion an established business which does not pay its owner(s) a decent wage is really a hobby. So given that we need our businesses to make money it follows that we need to be sufficiently au fe with business finances to understand if our business is running our finances, or whether we our running our business finances.
Unfortunately, a large numbers of business owners are not financially savvy enough.
If you would like to see if you are one of these, try answering the questions below:
Do you have a clear financial plan?
Do you know if your business is currently profitable?
At this point do you know how much money is in your bank and what money you can expect in and out of your bank account over the next month?
Do you know what customers/products/services are profitable?
Do you have a robust invoicing and debt collection system so clients pay you in a reasonable time (do you know what reasonable is?)?
Are you always able to pay your suppliers on time?
Can you always pay your salary/dividend/drawings?
Do you know how much you have to sell, and at what price, to provide the lifestyle you want?
If the answer to two or more of these questions is “no” you are probably not as financially savvy as you need to be to run your business effectively.
However, help is at hand and there are ways you can help yourself.
If you have an accountant/bookkeeper ask them questions about your financial position and what you could do to improve it
Talk to your business friends who seem to be financially sorted and ask them what they do
There are volumes of business books out there that can help you understand the basics
Take time to properly plan
You may want to go on a finance for non-financial managers course to learn the basics in a workshop setting.