We love sharing financial advice from Dawn Fotopulos, author of Accounting for the Numberphobic: A Survival Guide for Small Business Owners. With more than 20 years’ experience helping small business owners thrive, Dawn loves educating entrepreneurs about all money matters. In this article, we turn to Dawn to learn how to boost cash flow in 3 simple steps.
Step 1: Invoice, invoice, invoice
Dawn can’t say enough about the power of an invoice. If you need to boost your cash flow fast, one of the easiest things you can do is send out an invoice right now. Here are some important tips about getting the most out of this money-generating tool.
Step 2: Keep it simple
When you make it really, really easy for clients to pay you, it’s a lot more likely they will. In this case, “easy” means a couple different things.
Step 3: Make a new friend
Not just any friend, mind you: Dawn wants you to get friendly with your clients’ accounts payable officer. After all, this person is the key to your cash flow. “I make a point to get to know these people on a first-name basis”, she explains. “I genuinely appreciate it when someone in accounts payable processes my bill, and I always send a thank you note.” When you pay your respects to the accounts payable officers, chances are they’ll make paying your invoice a priority.
Ask the expert
Here, Dawn weighs in on questions and concerns about cash flow from small business owners like you.
Q: I’m getting better and better-collecting payment, but my company still has trouble getting paid, no matter how big or small the customer. Would you recommend we get a pre-authorised credit card number, just like at a hotel when you make a reservation?
A: The credit card solution might work. You'll get the cash sooner, and this approach gives customers some time-float. You have nothing to lose by asking. Also, don’t forget to invoice more frequently in smaller increments. That might make it easier for the client to pay your bills faster.
Q: Should I be looking at my books based on available cash or based on accrual?
A: If you want a true view of what's really going on in your business, use the accrual method of accounting. That reveals what you owe others but haven't paid yet. It's important you know this. The cash in the bank does not give you a clear picture of how much cash you actually have if, for example, you owe subcontractors a tonne of money.
I had 1 client who thought she had 18 months of operating capital. We looked at her books on an accrual basis and found she had less than 60 days’ cash on hand. Learn from her mistake! When you owe £360,000 to developers and are accounting on a cash basis, you're blind to liabilities.
Q: I’m in my fourth year of business. I suspect that in my first 5 years, I’ll probably have a lot more expenses than I will later on. Right now, cash flow is still tight. Is that typical?
A: Yes, this scenario is typical. In my 17 years of coaching, I’ve seen so many small businesses expand their expenses way too fast. In the first 3 years of operation, you need to squeeze every pound you have.
Q: I invoice once a month, at the start of the month, billing for the previous month. Since I track time, it's a pain to get from my time tracker (Toggl) into QuickBooks, so I batch it together. How does that sound?
A: It sounds fantastic and it shows great resolve. Invoice automation is incredibly helpful—and it keeps us honest!
Want to read more about why your money matters? Have a browse through the articles below... From Dawn and other QB Community experts:
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Having in pace a sound organisational structure, information systems and accounting system with integrity helps in the management of good cashflows. With good structures in place, debts are easily collected and payments made when due. To manage cashflows better, a 13-week rolling cash budget is suggested. It allows a weekly update of the cash budget, so helps manage the overall weekly cash position and see what is collectible or payable in each week. It gives a more consistent and efficient manner of collecting debts and making payment when due.
Great tips, Simon Having a structure in place is a brilliant idea!
How do you prepare your clients for creating a good structure for their payments, debts etc? Do you have any pre-made resources they could use?
@EmilyMockett I would love to know your take on this. How would you recommend your clients boost their cash flow and be on top of their business?
I would recommend getting some automatic payment processes in place such as Go Cardless.
I would also suggest getting an automated debtor collection third party app that links into QuickBooks in place such as Chaser or Satago.
Sometimes, all of these new apps can be a little overwhelming. However, speaking to others who know how they work is a great insight to have to see if they would fit what you do. @EmilyMockett has really helped me with every stage of QuickBooks! As a suggestion, you could ask @EmilyMockett and get her advice