One of the top reasons a new venture goes out of business is not enough cash behind that organization. Unless your idea takes off like you had never thought it would, you are in all likelihood in for spending more cash than you had planned for. There are probably few occasions when starting a new business takes little cash. And, few businesses that nail their budget to the exact penny the first time around.
As a collection agency serving small businesses, we often see a new business in a situation where the cash flow becomes an issue in moving forward as planned. Growth plans are stifled as a result of limited cash on hand and in many cases, a business can fail before they get a true chance to make an impact. Planning and opening a new business takes a lot of cash in some cases, customers not paying on time only makes the early stages of a company that rougher.
Having adequate cash at any stage of a business in mission-critical. Without it, you don’t have a business. But in the beginning, it’s make or break.
We have compiled a number of tips that should help anyone get their business off on the right track, especially when it comes to having enough cash flow.
Cash Flow Mindset: Many entrepreneurs are great idea people. In fact, for most, that is their greatest asset. But for many, numbers are not their favorite thing. And we get it. Depending on the complexity of the business, numbers can get confusing. Plus, when starting a business, there can be a mountain of things you need to worry about. Probably too many to list here. But, you have to have a cash flow mindset. If you are just not good at keeping an eye on the numbers and your cash flow, get some help. But even when you have help, you are in business so that means, ultimately, you need to have that mindset. If you say, “I’m just not good at numbers,” get over it. It is time you paid attention.
Cash flow is also about having enough funds to make your new venture a success. At this stage of your business, it’s a good idea to have a relationship with a banker or lender that can work with you to make sure you have enough cash behind your new business. It’s not about borrowing a ton of money with no way to pay it back. It is about making sure that lack of cash doesn’t get in the way of growing your business. Over-borrowing can be just as bad as no cash at all. It can land you in debt if you don’t pay attention to your numbers and your growth.
Growth Mindset: There is probably no more important time to focus on growth that right at the start. We can’t think of a single type of business that doesn’t rely on customers and clients of some sort. So, that’s your job, right from the very beginning. Focus on getting paying clients. The sooner you get clients and customers, the less headache you’ll encounter when it comes to cash flow. Do what you must do. Have a plan and execute swiftly. That includes calls, emails, connecting with your network, old and new and creating partnerships where you can.
Accounts Receivable Mindset: Don’t wait until you have a cash flow problem to act. Have a solid plan in place and that’s a concrete accounts receivables program. Have it in place right from the start. Collection agencies that serve small business see this all the time. A business is up and running but no buttoned-up procedures for getting late and non-paying customers current. And it can get out of hand fast. A few basics to keep in mind. First, never wait to invoice a customer. Have a set schedule to do your billing. If that’s not you, have your staff do this at regular intervals. We know every business is different, but the rule of thumb is to have billing in your calendar. That could be every day, every month or weekly.
And a quick news flash…If you are in business, you are going to have late payers. It comes with being in business. So, have a plan to get your customers current on their obligations to your business. That includes a plan to follow up with customers both in writing and by phone. Always treat your customers with the respect they deserve. Especially at the early stages of a business. Having the reputation of harassing consumers to pay will not serve you well. Building long-term relationships is one of your key goals when starting a new business.
And it really does make sense to have a relationship with a reputable collection agency, even before you have an issue. Find one that understands your business and one that mirrors your values as a company. When you have this relationship already in place, it makes the task of debt collection that much easier for you and your staff.
Budget Mindset: You need to have a budget in place. That’s not an option. It’s a must. Even before you open your doors, you should have already done some kind of budgeting. Don’t know how to do a budget? You are not alone. That’s why we have accounting professionals, CPA’s and bookkeepers. You can even find professional consultants that offer these services and help guide you through creating a budget you can stick with.
Careful Spending Mindset: You don’t have to live on bread and water in the early stages of your business, but you do need to watch every expenditure carefully. You might have the best idea in the world, a solid plan for growth but when it comes right down to it, getting a business profitable, can take more time than you think. Watch every dollar that goes in and out of your business. Review items regularly, find ways to save money, invest in what you need to grow your company and wait on items that don’t contribute to fast growth.
There are all kinds of stats out there about the percentages of business failures in the county and what contributes to those failures. We know one and that’s a lack of cash flow. A business can and will run out of money if you’re not careful and you don’t develop the mindsets above. Numbers matter at any stage of a business but critical in the beginning.