Cash Flow Management—Why It Matters + How to Do It
Cash Flow Management—Why It Matters + How to Do It
Money’s a tough topic to broach, but a VERY important one. Let me enlighten you to a frightening statistic—according to SCORE, 82% of small businesses fail due to cash flow problems.
So let’s talk about it, and as practically as possible. Because no matter your educational background relative to business ownership, boots-on-the-ground ‘how-to’ is tough to find in any textbook, and I think sometimes we all feel a little lost.
Below are some cash flow management strategies we’ve followed and that have helped us keep consistent earnings over the years! (BIG shoutout to our CFO, Stevie, for helping us actually put these ideas into practice.)
Implement Retainers:
Offer retainer agreements to clients for ongoing services, such as monthly design consultations, photography packages, etc.
Example: Interior designers, you could offer a monthly retainer for ongoing design consultations and support, (e.g. how to decorate for the holidays, spruce up a table for a dinner party, etc.) providing clients with consistent access to expert advice and assistance.
Keep Invoices Clear and On Track:
Send invoices and the payment schedule promptly after a client signs a contract or agrees to work with you. On your invoices, clearly outline the scope of work, fees (such as penalties for late payment), and payment terms.
Example: We lay out payment terms before we start the project, and maintain those dates regardless of whether a project actually runs according to schedule.
Offer Multiple Payment Options:
Provide clients with various payment options, such as credit cards, PayPal, bank transfers, or payment platforms like Square or Stripe, to make the process as easy as possible for them to complete quickly.
Require Deposits:
Request deposits before starting work on a project to secure commitments from clients and increase your chances of consistent income month to month.
Build a Cash Reserve:
Set aside a portion of your revenue each month to build up a cash reserve for emergencies or unexpected expenses, such as a computer dying or crazy life circumstances that prevent you from working.
Example: If you’re a wedding planner, you could allocate a percentage of each bride's deposit towards a dedicated emergency fund to cover any unforeseen expenses or last-minute changes.
Diversify Your Revenue Streams:
Think through ideas to diversify your income by offering add-on services or creating digital products or courses.
Example: Photographers, you could diversify your income by selling Lightroom presets or creating a course about how to get better at iPhone photography.
Regularly Review and Forecast Cash Flow:
Conduct regular reviews of your cash flow statements and forecasts to identify trends, anticipate your cash needs, and make informed decisions about managing your finances as a whole.
This is where your CFO or accountant is truly invaluable! The advice of a learned professional pays for itself!
If the concept of cash flow management is new to you, start small by implementing one of the strategies above and building on it as your confidence grows. And if you’re managing your cash flow by practicing a strategy not currently on our list, please tell us about it! We’d love to learn from you!
