Have you ever had a whole bunch of expenses to pay (or accounts payables) and hardly any money in the bank? And does this sometimes happen while you also have a handful of outstanding invoices from clients (or accounts receivables)? Well, that’s exactly what a cash flow problem looks like. It’s literally a problem with the flow of cash coming in and going out.
You may feel like you’re alone here, but you’d be amazed how many entrepreneurs struggle with this! Luckily, solving your cash-flow troubles is simpler than you might think.
How to fix your cash flow problem:
1. Always have a contract
Do you have a contract your client signs right before you start working together? If you don’t, you should. On said contract, you should outline the duration of the contract (for example, working on a retainer, a specific project, etc.), your due date, and any late fees.
On my contracts, I clearly state the duration of our contract, which is usually 3 months, along with the starting and end date. In addition, I include the due date and late fees, (something along the lines of, “due the first of every month with a net 7 grace period, a $75 late fee, due past grace period”.)
I know exactly what you’re wondering: “how does this even relate to my cash flow problem?” Well, if you don’t give your clients a day to pay you by and consequences if they don’t pay you on time, chances are they’ll pay whenever they can/want. Having contracts in place helps straighten out the sporadic ups and downs in your account. You’ll know how much money is coming in and when it’s coming, which will help you map out what your incoming cash flow will look like.
2. Examine your expenses
Once you’ve got a contract with very specific “money-related” guidelines, it’s time to take a look at your expenses. Sometimes a cash flow issue arises when all your revenue (money generated from sales) is drained by the cash flowing out. This usually means you don’t get to pay yourself for a while, and that’s horrible.
Reviewing ALL of your expenses and eliminating any and every unnecessary expense should be your next step. Every dollar that goes to paying for expenses is a dollar that’ll never go to your profits. (This is where you pay yourself from, by the way!)
I’m all up for outsourcing and having all the right software/programs for your business, but I’m also a huge believer of doing it lean—investing only in what your business absolutely needs to run.
3. Be wise!
Once your incoming and outgoing cash flow has been fixed, the final step is stewardship. I’m sure you’ve heard the words “feast and famine”, which indicate either having too much or too little. The problem with having too much is poor cash management, which happens when there’s no plan to properly handle a season of abundance. When we have too much money without a clear plan for it, we tend to misuse it rather quickly. Which means that your months of too little cash lead to debt, frustration, and wishing you had saved and properly managed when there was more. More businesses shut down for poor cash management than you can imagine.
So, what are you supposed to do to be a good steward? One word—SAVE! Saving when your income is high is the best way to avoid the “famine”. Saving, budgeting, and monitoring your finances will help give you a smooth and stable cashflow. And that means you’ll be able to avoid those really high ups followed by really low downs.
In summary, you’ve got this! You can definitely fix your cash flow problem. Just take it one step at a time, fix your incoming and outgoing finances, and be the best steward you can be.