It is one of the great mysteries of the universe. There always comes a time when a business runs out of cash. For some it is at the beginning of every month when all the bills are due. Other businesses become cash challenged when the 3 pay period months come around. For others it is once in awhile. And it matters little what size the company is. Richard Branson tells the story of having to sell Virgin Music to EMI for a billion dollars to keep Virgin Air afloat; that is $1,000,000,000!
In this fourth and final blog about managing the finances we ask the questions. Why do your business run out of money and what can you do about it?
- Your customers consistently pay late. Implement incentives for timely payment. Offer 2% discount if paid within 10 days. Or accept payment by credit card; everyone collects points so many businesses love paying by credit card.
- You are not invoicing in a timely manner. If you are shipping products invoice as soon as the product is shipped. If you sell service on a monthly subscription invoice on the last day of the month NOT the 15th or 20th of the following month, email the invoices on the same day.
- Someone is stealing. This is a huge topic for fraud experts only. If there is any concern that theft is a problem talk to your accountant about the next steps; unless it is the accountant you suspect in which case talk to another accountant!
- Your Operating Expenses are more than your Revenue. This imbalance is leading you towards bankruptcy so act quickly and act aggressively. Cut expenses NOW. If you can’t cut enough then launch a laser focused sales campaign that will bring in revenue fast.
- You are charging lots of the expenses onto credit cards and then ignoring them until the statement comes in and you must scramble to find the money to cover all the charges. Instead, pay the credit card every time you charge something to it.
- You are not putting money aside for the known large quarterly or annual payments. Common example is the dreaded HST. We collect it on behalf of the government but instead of setting it aside we use the money on other things. Don’t! Set up a special account and every time an invoice is paid take the HST amount and deposit it into the special account.
To read more about how to manage your cash flow by doing cash flow projections click here