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Is your business struggling with cash flow?
Do you think you need to raise money to solve this problem?
I’ll give you 9 tips on how to manage cash flow without having to raise money from investors
Do you think you need to raise money to solve this problem?
I’ll give you 9 tips on how to manage cash flow without having to raise money from investors
0/ The Problem:
Most businesses struggle with cash flow issues due to a mismatch between cash outflows and inflows
What does this mean?
It means you’re paying for expenses before you get cash from your customers
Most businesses struggle with cash flow issues due to a mismatch between cash outflows and inflows
What does this mean?
It means you’re paying for expenses before you get cash from your customers
These expenses have to be paid using cash from:
- your personal funds or
- investor funds
- your personal funds or
- investor funds
The tips I provide below are ways you can manage cash flow by getting creative using:
1. Customer Payments terms, or
2. Debt
These creative methods bypass reasons to raise money from investors and incur further equity dilution in your company
1. Customer Payments terms, or
2. Debt
These creative methods bypass reasons to raise money from investors and incur further equity dilution in your company
1/ Ask for a Deposit
If you’re working on a project for your client with a deadline that is far out into the future, say in 30+ days,
Don’t wait to bill until the deadline
If you’re working on a project for your client with a deadline that is far out into the future, say in 30+ days,
Don’t wait to bill until the deadline
Instead, ask the client for a deposit based on a % of the total value of the project
You can use this deposit to fund your short-term expenses to get the work done
You can use this deposit to fund your short-term expenses to get the work done
2/ Bill Frequently
If you’re working on a project for your client with a deadline that is far out in the future, say in 30+ days,
Change your billing cycle so that it’s TIME-based instead of DEADLINE based
If you’re working on a project for your client with a deadline that is far out in the future, say in 30+ days,
Change your billing cycle so that it’s TIME-based instead of DEADLINE based
Tell your client that you will be billing them for work done to date at:
- The end of each month, or
- At each milestone
Instead of at the end of the project
- The end of each month, or
- At each milestone
Instead of at the end of the project
3/ Send your invoices quickly
As a CFO, it’s quite shocking to me to see clients who don’t bill their customers in a timely manner
Send your bills to your customers as soon as you’ve completed your work
So that you can collect the cash that is owed to you quickly
As a CFO, it’s quite shocking to me to see clients who don’t bill their customers in a timely manner
Send your bills to your customers as soon as you’ve completed your work
So that you can collect the cash that is owed to you quickly
If you have problems invoicing clients due to a lack of time or forgetfulness
Consider outsourcing this function to an accounting firm
Consider outsourcing this function to an accounting firm
4/ Make payments easy
If your client has to make an effort to pay you, guess what’s going to happen?
You’re not getting paid
Use digital payment methods (stripe, square) to make it easy for clients to pay you
If your client has to make an effort to pay you, guess what’s going to happen?
You’re not getting paid
Use digital payment methods (stripe, square) to make it easy for clients to pay you
Better yet, set up a pre-authorized debit
This way you can get paid on a predetermined date each month without even talking to the client about their invoice
This way you can get paid on a predetermined date each month without even talking to the client about their invoice
5/ Provide incentives for early payment
If you’re having a hard time convincing clients to pay on time or need cash sooner for your business,
Offer clients a small early payment discount to incentivize earlier payment
If you’re having a hard time convincing clients to pay on time or need cash sooner for your business,
Offer clients a small early payment discount to incentivize earlier payment
Although not all clients might opt for this option, some clients will and you’ll get some money in the bank sooner
6/ Stay on top of Accounts Receivable
Make it a priority to follow up on outstanding bills greater than 30+ days
As a business owner, you can’t just expect to bill your clients and forget about it
Make it a priority to follow up on outstanding bills greater than 30+ days
As a business owner, you can’t just expect to bill your clients and forget about it
You’re the CEO and Chief Collections Officer
If clients aren’t paying you on time, you have to give them a call to remind them
If this is a reoccurring issue, build in a disincentive to pay bills late by charging interest on bills that are late
If clients aren’t paying you on time, you have to give them a call to remind them
If this is a reoccurring issue, build in a disincentive to pay bills late by charging interest on bills that are late
7/ Lease vs. Buy
Should you Buy equipment or Lease it?
Although buying a piece of equipment in the longer term could be cheaper than leasing
The cash flow required to buy equipment upfront can be substantial
Should you Buy equipment or Lease it?
Although buying a piece of equipment in the longer term could be cheaper than leasing
The cash flow required to buy equipment upfront can be substantial
If you don’t have the cash to buy a piece of equipment
Consider leasing it so that the cash flow burden is spread out over the long term
Instead of taking a big cash hit by purchasing
Consider leasing it so that the cash flow burden is spread out over the long term
Instead of taking a big cash hit by purchasing
8/ Supplier Payment terms
If you’re paying supplier bills before you get cash from your customers
Consider negotiating some of the bill payment deadlines with your suppliers: get later deadlines
If you’re paying supplier bills before you get cash from your customers
Consider negotiating some of the bill payment deadlines with your suppliers: get later deadlines
This allows your business to reduce the cash outflow you incur to pay for expenses
Before you get a cash inflow from your customers
Before you get a cash inflow from your customers
9/ Use a credit line
If the above 8 suggestions still leave you with cash flow problems, consider using a credit line from a bank
A credit line is a flexible loan
It allows you to borrow up to a certain amount to pay for expenses while you’re waiting for cash from customers
If the above 8 suggestions still leave you with cash flow problems, consider using a credit line from a bank
A credit line is a flexible loan
It allows you to borrow up to a certain amount to pay for expenses while you’re waiting for cash from customers
The only downside of this option is that you will need to pay interest on the amount you borrow
10/ Other financing options:
Many start-ups/lenders offer other creative sources of financing. These include:
- Financing from banks such as: Silicon Valley Bank
- Revenue share financing from companies like: Clearbanc
Many start-ups/lenders offer other creative sources of financing. These include:
- Financing from banks such as: Silicon Valley Bank
- Revenue share financing from companies like: Clearbanc
TLDR:
1. Ask for a deposit
2. Bill frequently
3. Send invoices quickly
4. Make payments easy
5. Provide incentives for early payment
6. Manage A/R
7. Lease don't buy
8. Negotiate supplier payment terms
9. Use a credit line
10. Other financing options
1. Ask for a deposit
2. Bill frequently
3. Send invoices quickly
4. Make payments easy
5. Provide incentives for early payment
6. Manage A/R
7. Lease don't buy
8. Negotiate supplier payment terms
9. Use a credit line
10. Other financing options
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I write 1-2 threads per week about Finance + Business Frameworks + Personal Growth
Follow @AliTheCFO
I write 1-2 threads per week about Finance + Business Frameworks + Personal Growth
Follow @AliTheCFO
