I’m continually amazed at how small business owners borrow against their family home and then think they have CASH to spend in the business.

If you have borrowed money or have a form of borrowing in your business then you are using other people’s money in your business and not your own.

The fact is that to get started most small business owners have some sort of borrowing because just like buying a house it is difficult to save up enough money to launch a business from your own money.

So to get started it is simply a matter of taking a loan against the family and ‘hey presto’ you’re in business.

BUT unless you believe you’re using other people’s money which needs to be paid back you can get further and further into debt without quite realising it.

The fastest way out of debt is a strong cash flow in your business.

The fastest way to get into trouble is to forget about your borrowings and fail to produce good cash flow.

I’m not talking about profit because it is possible to make profit and still have bad cash flow.

There are lots of resources on cash flow available but if you would like an introduction then go to our series of teaching on this and educate yourself before finding the bank breathing down your neck.

Imagine going to your internet banking and finding you’re nearly out of money?

What do you do?

Where do you suddenly get more money?

Do you know what an aged trial balance of accounts receivable is?

It’s a listing of all the money that is owed to you from your customers.

Make yourself a promise that you’ll review this on a monthly basis as a minimum.

If you’re in trouble then weekly is much better and you can tick of all the money as you collect it from your customers.

There are many horror stories of small business owners continuing to supply products and services to customers who are not paying, have no intention of paying and are just going along for the ride.

If you are in construction then you will know about this but whenever the economy gets a little tight, you must pay additional attention to getting your money in.

Let’s face it, it’s one thing to make a profit but a completely different story to have money in your bank.

If you’re asking yourself the question “Where’s the money gone?” then a great place to start is your accounts receivable.

What are your experiences on collecting cash from customers?

Have you found this difficult?

Are there any tips you would like to share with others?

Many small business owners are continually running short of money and instead of looking inside their business to see what might be wrong; they simply borrow to keep things going.

This is obvious lunacy but its amazing how many just borrow and hope that things will turn out better.

Banks are always on the look out to lend you more money because this represents more income for them.

While it is very tempting on occasions to borrow to keep things going, make sure you move beyond just hoping things will get better.

Have you reviewed your business model to make sure it is sound?

Do you know what your business model is and how it could be changed?

Good cash flow is the life blood of any small business.

Without it, business owners struggle constantly to find enough resources to keep the business going while at the same time putting food on their table at home for their family.

So what are seven good tips to help you keep the cash moving in your business?

1. Get a weekly copy of your bank statement – Many business owners do not ever review their bank statement and leave it up to their book keeper to do all this for them. As a result it’s ‘out of sight – out of mind’ when it comes to the awareness of cash and they only look when a crisis occurs.
2. Review your invoicing procedures – If you are not efficient in getting invoices out to customers then you’re unlikely to get money back from them efficiently. You send a message to your customers with your invoicing procedure so if it is haphazard or late your customers are likely to take the same attitude to paying you.
3. Review your terms with your customers – What terms do you sell on? Do your customers adhere to those terms or just pay when they feel like it? When was the last time you checked the actual terms in your business or reviewed them with your customers?
4. Clean out old inventory – Many business owners hate the pain of dealing with old inventory because it usually represents a mistake that was made which can be hard to own up to. As a result the inventory builds up and ties up money in something sitting doing nothing. Have a sale or look for a different channel to sell surplus or excess stock into and you’ll be happier with the money back in your bank.
5. Review your payment procedures – Do you have a disciplined and formal method of paying your suppliers. Is it a matter of paying when you have the money or when suppliers ring up OR are there particular days of the week or times in the month when you make payments? Do you time your payments with receiving money from your customers?
6. Review the terms for your suppliers – When was the last time you negotiated terms with your suppliers? Do the terms with your suppliers match the terms you give your customers. If you buy on 30 days and sell on 60 days then you will always have a cash flow deficit particularly if your business is growing strongly.
7. Don’t focus solely on making a profit – most business owners are completely focused on making a profit until they run out of cash. This means focused on the costing and pricing without considering their working capital and how the money flows in their business. While making a profit is important, having money in the bank is more important because when there is no more money you’re broke!!

What’s your experience with cash flow?

I’d love to hear your feedback or further tips you’ve found useful.