Money Management Basics
The ability to manage cash flow in your business is critical to the success of it. In fact if you run out of money, even if you have money coming in, eventually your business could go down the tubes. Even a business that regularly grosses millions of dollars can fail due to poor money management.
Open Separate Accounts
No matter how large or small your business is, it’s important to open a separate business bank account to keep the money you run your business with. Always keep enough cash on hand to keep your business open. Many businesses fail not due to low revenue, but due to spending the money in the register before it’s really yours. It’s not yours until you pay it to yourself and put it in your personal account. And it should never be put into your personal account until you’ve paid your business bills.
Know Your Cost of Doing Business
Every business, including online businesses, have a cost of doing business. There is a minimum cost that is required to “keep the doors open”. You must always have at least that amount of cash on hand, and work toward being three to six months ahead. If you do that, you won’t have as many cash flow problems and you’ll be able to prosper.
Keep Your Books Up-to-Date
Do not delay keeping your bookkeeping done. Without doing daily entries, you can miss important issues that are happening in your business. You can’t know where you’re going if you don’t know where you’ve been and don’t have any clear-cut goals. Keeping your books regularly will help you establish them and meet them.
Establish Clear Payment Terms
If you are selling services over products, this is a very important factor to remember. If you don’t have clear payment terms that your clients all have to abide by, you can run into severe cash flow issues that can literally close your business down. By establishing a three- to six-month cushion you can avoid a lot of problems, but nipping non-payments and slow payments in the bud will help even more.
Do Enough Work to Get Paid
It can be very easy to get distracted by unpaid work. This is most especially true if you have an online business. There is so much work to do on your business that you can forget to do the work you need to do in order to get paid. Be sure that you do enough work every single day to get paid what you need to be paid. If it requires 5 hours of billable work a day, you need to do 5 hours of billable work a day. If you don’t have 5 hours of billable work to do, you need to be using that time to seek work.
Understand Where Your Business Is Headed
By establishing clear goals, keeping the books, and doing enough work to get paid, you’ll start to see patterns emerge. For instance, you might notice that during certain times of the year such as April (tax time) and December (Christmas), your clients start slowing down either payment, work or both. If you know this in advance, you can plan for it by getting more work, or by adding to your cushion to avoid any cash shortages.
Most Cash Flow Issues Can Be Avoided
Believe it or not, most cash flow issues can be completely avoided with planning and forethought. You need to have policies for payment, late payments and debt collection in place that make it easier for you to deal with issues as they come up. In many cases you can require payment in advance, start accepting credit cards, or offer financing with interest so that clients are incentivized to pay on time.
Treat Your Customer Right and They Will Treat You Right
A good way to get paid on time by your clients is to deliver quality work on time and on budget, with clear expectations of payment due before ownership or delivery of goods and services can take place. The more you value yourself as a business owner, and the more you respect your clients as business owners, the easier money management becomes.
Managing your money is a skill that anyone can learn. A really good book for small business owners in the USA to read regarding bookkeeping is Small Business Taxes Made Easy (Second Edition) by Eva Rosenberg. Even if you do not wish to do your own taxes, this is an important book to read because it lays out what you need to keep track of and how to best manage your money for success.
Link to book: http://www.amazon.com/Small-Business-Taxes-Second-Edition/dp/0071743278