Cash Flow 101
I am sure that you are aware that good cash flow is very important. In fact, it doesn’t matter how fantastic your idea is, poor cash flow can be the cause of death for your business.
So, its all very well saying that but how do you improve your cash flow? Well, as it happens, that is what we are going to address right now.
Xero Invoice Reminders
Setting up Xero invoice reminders or using a Xero add-on that allows you to send friendly reminders to your clients that they need to pay can help. On average, invoices are paid 70% sooner by having a gentle nudge and with most software options, you can now add your signature, personal messages etc. so it appears like it has come from you yourself rather than an automation doing the heavy lifting!
A while back, Ben, our Director wrote this piece about getting paid faster. Which you should totally check out by the way. One of his tips was to have a good looking invoice. If an invoice is clear to understand and easy on the eye, then it is more likely not to get ignored.
Check out Ben’s other tips on getting paid faster.
Getting paid on time is obviously important, but the question is, how?
If you can, try and make your business model work with GoCardless. Now although this is not a one size fits all solution, if you can make GoCardless work for you, then it will change the game. GoCardless allows you to collect direct debits from your clients. They take 1% of the fee up which is capped at £2 for all amounts over £200. Which is pretty amazing compared to Paypal and Stripe fees!
This takes out all of the awkwardness out of asking for payment as you only need to ask once. Your client is always notified a few days before too, so it is never a shock, what’s more, is that it takes away the stress for your client to take time out of their diary to pay you. Win. Win.
A Presentable Invoice
Do not underestimate the power of a good, clean invoice. If you read our ‘how to get paid faster’ post you will know the importance of a good-looking invoice. People haven’t got a lot of time, so they do not want to spend ages analysing your invoice. Make sure what you are invoicing for is clear, make sure the due date is clear. Simple things like this can have a huge impact. It’s all about marginal gains.
Invoice finance is not necessarily the first option that I would recommend nor is it something I would want to do every month, but it is worth a mention. Invoice Finance is a ‘way for businesses to borrow money based on amounts due from customers’. Companies like Satago and MarketInvoice offer invoice financing for small businesses. These offer invoice finance on demand, rather than any big commitments you usually have to make with the banks or other large "corporate" invoice financing solutions.
0% APR Credit Cards & Payment
Now to be clear, we are not suggesting that you get something on 0% APR that you do not need or that will put you under stress financially. But if you are buying something large, do a little research if there are options to split out the cost. For example, 3 little payments are not going to make as much of a dent as one huge payment. Research what rates you can get for credit cards and always talk about payment options- there is no shame when it comes to good cash flow!
Paying terms, having a plan to see who to pay and when
This is, to a degree strategic. You want to ensure that you have paid everyone on time, which means prioritising who you pay depending on their payment terms.
Get as many costs as you can split monthly.
Especially if the cost has no interest. This is one of the reasons as to why we charge our fee on a monthly basis. It helps our customer’s cash flow instead of one, hefty bill at the end of the year.
Of course, income is a massive part of cash flow. But there are a few things that you will want to do to make your income work for you, things such as creating multiple, passive and monthly income streams. So let’s take a look at them.
Build a form of passive income. Passive income will not necessarily be your primary source of income (unless you are fortunate) but it is worth investing some time and money in. Create something that is evergreen and will not expire. To make your content evergreen do not mention any dates or seasons. I mean if it is a historical event, of course, you can mention, but do not make references in the sense of next months date for example. Alternatively, you can get passive income from many other sources such as royalties, page clicks, rental income and investments.
They say you should aim for 7 sources of income. Ideally, this will be a mixture of passive and active. Typically you will start with active and build with passive. Passive income streams are arguably easier when you have accumulated money, but that’s not to say you need it to start. Focus on looking at e-courses, ebooks and downloads. But to keep this truly passive you may have to look into outsourcing your marketing efforts. Your income streams can vary in size, but the idea is to continue building them. This could be anything from investments to products to services, the possibilities are endless- be creative.
Finally onto monthly income. Which is a very big factor of cash flow. If you can make it, so you get paid monthly- then do it!
If you are a service-based business, try splitting your cost out. As accountants, this is something we practice as well as preach. We split our cost into monthly payments to help not only our own but our client's cash flow. One thing to mention here, however, is always to be upfront about your fees, do not hide anything, be completely transparent, so your clients know what to expect.
Alternatively, this principle can be applied if you are a service-based business such as a hair salon. Perhaps you could offer your VIP clients the option to pay monthly in advance to break up the payment. So for example, if your client needs their hair done once every 2 months, give them the option to pay in advance in 2 instalments so by the time they come to get their hair done it is already paid for. This will benefit your client with their cash flow by splitting out the cost and will allow you to not only secure that booking but give yourself a monthly expected amount of money coming into the business.
And of course, there is the subscription-based products and services. Think about your business and be creative to discover what you can make a monthly income stream.
So I hope you have got some ideas and things to implement in your business to improve your cash flow! Remember it’s all about the small steps you take, so do not get overwhelmed, slowly look into your income streams and processes and see how you can make a little yet momentous change. Good luck!
About the author
Chloe Slade is the Marketing Manager here at Cone and focuses on creating content that brings business and lifestyle together. Chloe is keen makeup lover, foodie and loves to work from luxurous destinations.