Cash flow is the #1 reason why businesses fail. The timing of making payments to vendors and receiving payments from customers impacts how much money you have on hand to continue to pay your bills, your employees, and yourself. These tips will help you Reduce the Risks and improve your cash flow.
Limit payment terms to your customer unless the market dictates open terms –
Don’t just provide open terms to your customers if you don’t have to. Research what your competitors are doing.
Offer early payment discounts –
Terms like 2% net 10 offer a customer a 2% discount for paying within 10 days. This will bring your cash in quicker and improve your cash flow as well as minimize your collection efforts. Incentivize your customers to pay early.
Request upfront payments –
Requesting upfront payments to cover costs and expenses is standard in many industries. Bringing in the cash in advance reduces your cash flow risk as you have the cash on hand to cover all costs and expenses as you expand your business.
Ask vendors for extended payment terms –
You should ask all your vendors for extended payment terms. Every day helps! If you don’t ask, you won’t know what levels of purchasing you need to achieve to receive extended payment terms.
Ask for down payments –
Similar to upfront payments, the standard in many industries uses down payments. Not only do down payments secure the order or service but they also create a positive cash flow by bringing in cash before any costs are incurred.
Immediately address issues with slow paying customers –
A slow paying customer is, in essence, extending his own terms. The squeaky wheel gets the oil. If you don’t contact the slow paying customers, they will continue to pay slow and continue to extend the terms. You need to contact them immediately and reset the expectations for on-time payment.
Send customers statements –
Sending customer statements for invoices that are near due will entice them to pay invoices. Using statements will improve cash flow as well as reduce the cost of making collection calls.
Use Milestone billings –
Milestone billings may be used for large orders or large projects. Schedule your milestones to ensure you have a favorable cash flow. Make sure costs and expenses are covered in the early milestones. The final milestone for customer final acceptance should be a minimal amount as you don’t want disputes to impact your cash flow.
Look at receivables daily –
You worked so hard for the sale but it’s not really a good sale until you receive payment. Never neglect your receivables as it’s a proven fact that the older they become the harder they are to collect. Look at your receivables daily and chase the payments as hard as you chase new sales.
Use new technology–
Make your life easier and use new technology to ensure there is no delay in invoicing your customers. Automate your invoice process, schedule your invoicing, bill from your phone, etc… Find which technology works for your business.
In the real-world Customers Don’t Care about the Entrepreneur!
By now, most people know that 80% of new businesses fail. Many of those failed Entrepreneurs failed to realize that Customers Don’t Care (CDC) about the Entrepreneur or their reason for doing things the wrong way or for the wrong reason. Let’s look at what Customers Don’t Care about.
I hate my boss!
Customers Don’t Care that you started your business because you hated your boss and were sick of working for the man! You won’t get one sympathy sale from a customer. You better have a much better reason to start your business.
I have a family event to attend.
Your personal life and family are important to you but it’s never an excuse that your customers will accept. You are no longer a person in your customer’s mind. You are a business and are expected to perform every function on time with no acceptable excuses.
If you don’t buy from me I will go out of business.
What happens when your sales are down and you are heading to bankruptcy? Customers won’t feel sorry for your business and buy your product to help you out. They only care about the unique value of your product and if it’s priced accordingly. Make sure you have a niche product/service and have it priced right!
I had a bad day!
Your car broke, your spouse left you, and your favorite sports team lost in the championship game. Yes, you had a bad day but your customers still expect happy, energetic, and friendly service. 95% of customers will share a bad experience with other people. You aren’t allowed a bad day at work. The wrong attitude with a customer will end up in a bad day you will never forget!
It’s not my fault!
The shipping company didn’t deliver on time. The manufacturer didn’t produce the product correctly. The computer system glitched. There are a million mistakes that are out of your control. If it’s your business then it’s your fault. Take responsibility and turn the negative into a positive. When you are the one getting paid then all of the issues are your fault.
If you want to succeed as an Entrepreneur, you need to understand that Customers Don’t Care about your reasons, excuses, or circumstances. They only care about what is important to them as a consumer. You have to make sure your 3 pillars (You, Your Idea, and Your Ability to Execute) are bulletproof and equally strong.
You, Your Idea, and Your Ability to Execute
Why do so many businesses fail! How do the 20% that succeed do it? There is no way to guarantee success when you start a business but the best way to increase your odds is to make sure your 3 Pillars are equally strong and bulletproof.
Pillar 1: You-
Nobody is born a perfect Entrepreneur. Everybody has strengths and weaknesses that need to be developed. Everyone has heard about Type A and Type B personalities but they really need the Type-E personality for Entrepreneurs. Having the right personality can sometimes be the difference between success and failure. You need to test your personality to find out if you are the right fit. Remember, nobody is a perfect Entrepreneur so knowing where your personality is lacking will allow you to do something about it.
Pillar 2: Your idea-
It starts with your reason for starting a business. Don’t confuse motivations for starting a business with the right reason. You must have a valid business reason to start a business. Just starting a business because you hate your boss, think it will be fun, or don’t have any other options will most likely result in failure. You must have a niche idea, a vetted business plan and so much more to have a chance at success. There is no opportunity for success when your plan is to copycat someone else. You need to have a unique product/service and bulletproof plan.
Pillar 3: Your ability to execute-
You could be the right person with the right idea and still fail if you don’t have the ability to execute. There are no regulations that stop anyone from starting a business. You can become CEO of your business tomorrow if you want. This doesn’t mean that you can successfully run your business. When you are the Entrepreneur, you are doing every job in your company. Every function that you are not skilled at is a major risk for failure. Do you know your skill set and have plans in place for anywhere you are weak? As CEO of your new company, you are responsible for finance, accounting, operations, sales, marketing, IT, distribution, customer service, etc… You need to be able to execute and implement that great idea and plan.
Startup Fearless provides an online Bootcamp training to help Entrepreneurs and New Business owners identify if their 3 Pillars are equally strong. It’s critical to self-assess before you invest!
An Entrepreneur Ceiling?
A glass ceiling has been defined as “an unofficially acknowledged barrier to advancement in a profession, especially affecting women and members of minorities.” Most people don’t think a “Glass Ceiling” exists in the entrepreneur world. How could there be a glass ceiling when it’s your business and you are the boss?
Up until 1988, woman entrepreneurs needed a male co-signer to get a business loan. And when they started their business the deck was stacked against them. Women-owned businesses were virtually excluded from all government procurement activities. In 1988, President Ronald Reagan signed the Women’s Business Ownership Act. The law eliminated discriminatory lending practices and provided additional resources to help women business owners.
The number of women-owned businesses in 1980 was 26% and has risen to its highest level to date at 38%. There are currently 9.1 Million Businesses owned by women and they generate sales of $1.4 Trillion Dollars. As women continue to bust through the ceiling they still face barriers and need the right resources to reduce the risks (RTR).
Even though the Women’s Business Ownership Act eliminated discriminatory lending practices, women are still having issues securing funding. Studies have shown that most of the funding goes to male-owned businesses. There is a perception that the male-dominated investors are more comfortable lending to male-owned businesses.
How do you Reduce the Risks (RTR)? Women Business owners need to take full advantage of all the available resources: Start with the Small Business Administration SBA. The SBA is dedicated to helping women launch a new business and provides resources for funding, training, contracting, and more.
Next, try the National Association of Women Business Owners (NAWBO). The NAWBO has over 5000 members and 60 Chapters. NAWBO provides women with the resources needed to drive their business and connect with other Women Business Owners.
Eileen Fisher (Minimum Grant of $10,000)
FedEx Small Business ($100,000 in grants available)
BBG Ventures (Every company in their portfolio has at least one female founder)
500 women (Invested in over 100 women-founded businesses in the last 4 years)
Belle Capital USA (Must have at least 1 female founder to apply for capital)
Golden Seeds (Early stage investment company focusing on women-led businesses)
The Women’s Venture Capital Fund (Focused on Women-Led teams in digital media and sustainable products and services)
Female Founders Fund (Early stage fund investing in female startups)
As women continue to bust through the ceiling they are doing so with outstanding results. Studies have shown that women-owned businesses or businesses with women leaders achieve greater success and fewer failures. It’s hard to believe that 30 years ago they had to ask a male relative for help to sign for a loan.
Studies and surveys show that the odds are against Small Business owners achieving their dreams. If 100 entrepreneurs start a business it is expected that only two businesses will reach $1M in sales and only three owners will pay themselves a salary of over $100k.
However, there is a statistic where entrepreneurs who have entrepreneur experience and start a second business increase their opportunities for success by 50%.
The reason is simple, the more experience you have the better your chances of success.
At Startup Fearless, we know that experience is the critical key to success and the best way to obtain this valuable experience is by becoming a member of Startup Fearless The Startup Fearless Membership is designed to give you the experience of having a previous business without having to learn from your mistakes.