How To Cope with Your Bad Business Decisions

It’s a common tale in business: do the work, then wait a month to get paid.

Sometimes, you wait even longer than that.

What happens in the meantime?

You’ve rostered staff on.

You’ve paid for tools, materials etc that are needed to complete the service.

So you’ve got all these expenditures… and nothing to pay them with.

Basically you’re delivering a service under credit.

You’ve paid for it, before you’ve been paid for it.

This is the norm with commercial clients or ‘big business’ corporations. 

And that delay in payment not only limits your ability to grow your business, it can actually cause your business to go bankrupt. 

Because the faster you grow, the more money you have going out. 

While there’s an eventual swing when that money comes back into the business, if you don’t stop to let the pendulum swing back enough for your cash flow to catch up, the wave just gets bigger and bigger… until it breaks.

Plenty of profitable businesses have gone broke while making money.

Because while you’re waiting for payments to come through, bills are piling up. Wages. Tax. Materials. 

And if there’s a problem within your pricing model, by the time you work it out… it’s too late.

And you’re being dumped by the wave of your own success.

If you’re in a business where customers pay you after a delay, managing your cash flow can be an incredibly tricky process. It can almost feel like you’re walking a tightrope some days. 

You’re looking at your staff wages due tomorrow, knowing if Clients X and Y don’t pay their invoices on time, you’re screwed.

Mitigating that risk is not a simple process, but it’s an important one.

Some ways you can reduce your risk include:

• Servicing markets where clients pay you up front (or at least a deposit). For instance, you may want to create a pipeline where you offer ‘fast cash’ services to one-on-one private clients. 
• Siphoning your income into a series of accounts that act like ‘rainy day buckets’. Such as one for staff, one for trades, one for materials, and so on. So you’ve always got some cash in reserve.
  
• Analysing your sales cycle - where can savings be made? Knowing your numbers is crucial here. How many calls to leads do you make a week? How good is your close rate? What are your margins? Where can you save money and/or time?
• Streamlining your resources to get jobs done faster - can you group your employees together to smash out a series of tasks faster? Can you rearrange your time so that your hours are more profitable?

The biggest clients are often the slowest to pay.

How do you mitigate cashflow risk in your business?