I recently had the pleasure of meeting Betty at a networking function. We got to talking, and I soon realised that she was someone who really cared about her business. She was passionate and driven, and it was clear that she had big plans for her company. However, like many small business owners, she faced cash flow problems.
I suggested to Betty that we arrange a meeting to discuss what was happening in her business.
Betty’s discovery was not a pleasant one. Although her business was doing well, she faced a serious cash flow problem. The root cause of the problem was that her clients were not paying on time. In fact, the data showed that some accounts were 90 days overdue, and yet she had still been continuing to provide them with service.
I asked Betty why she thought this might be happening. She told me that she didn’t want to upset her clients, and she thought that if she just kept doing a good job, they would eventually pay up.
This obviously needed to stop. Betty had no idea that by extending credit to these clients, she was actually putting her business at risk.
Betty had two options: she could either keep doing what she was doing and hope that her clients would eventually pay, or she could take action to improve her cash flow. After some consideration, Betty decided to take action.
We discussed a few options and eventually came up with a plan that would see Betty’s business start to recover within months.
The first step was to put together a new credit policy. This would be introduced to all new clients and for any new project that existing clients wanted to undertake. The credit policy would state that all invoices were to be paid via direct debit and that work would not begin until the first payment had been received.
The next step was to address the existing overdue invoices. Betty and I sat down and reviewed all of the accounts that were 90 days or more overdue. We devised a plan to contact each client and arrange a payment schedule. For some clients, this meant setting up a direct debit payment plan. Others were able to pay in full straight away.
The last step was to put together a new pricing structure. Betty had been offering discounts to some of her clients, but she wasn’t being consistent about it. I suggested that she put together a new pricing structure that would offer a discount for clients who paid in full upfront. This would help to improve her cash flow and allow her to provide a better service to her clients.
Betty received a bit of pushback, but nowhere near what she had anticipated. In fact, within weeks, she started to see a difference. New clients signed up on the new terms, and existing clients were beginning to pay their invoices on time.
Within two months, Betty’s business was back on track, and she was well on her way to achieving her goals.
At Insight CA, we love it when we get to see business owners like Betty take something they believe in, even if it seems impossible, and turn it into a business. These people have put in the time and energy to make their dreams a reality, and it’s inspiring to watch.
But what I find often, and I just hate seeing this, is that these same people who have sacrificed so much to work on their business end up failing because they don’t have a handle on their numbers or the proper foundation.
This is why we are on a mission to teach business owners that there are three ridiculously simple things they need for success: a clear understanding of their numbers, a solid business plan, and a good accountability partner.
With these three things in place, you’ll be well on your way to success.
If you’re facing a cash flow problem, don’t wait to take action. Click here to book your free Proactive Accounting Meeting, and let’s see how we can help you.
Are you struggling to grow your business? We recommend reading Joe’s story next and finding out the one important thing he missed that became the very reason his business couldn’t grow.
Are you struggling to make your business work?
Insight CA Limited is a team of experienced Auckland-based chartered accountants and business advisors who can help. We’ll give you the power to see what’s really happening in your business, so you can take control and start making progress. Click here to learn more about how we can help you achieve your goals.