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We love sharing financial advice from Dawn Fotopulos, CEO of DF Consulting, Inc. and author of Accounting for the Numberphobic: A Survival Guide for Small Business Owners. With more than 20 years of experience helping people who work for themselves not just succeed but thrive, Dawn loves educating entrepreneurs about all money matters. In this post, we turn to Dawn to find out how to boost your cash flow in three simple steps.
Let’s make one thing perfectly clear: Dawn Fotopulos earns her living advising small business owners how to achieve financial success, but she sees her work as less of a job and more as a crusade. “I’m on a mission,” admits Dawn. “Over 50% of small businesses fail in their first four years of operation. That’s outrageous!” The best way to change that dreadful statistic? Show entrepreneurs exactly how to manage their money.
Step one: 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 two: Keep it sweet and 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 three: Make a new friend
Not just any friend, mind you: Dawn wants you to get friendly with your clients’ accounts payable clerk. After all, says Dawn, this person is the key to your cash flow. “I make a point to get to know these folks 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 A/P clerks, chances are they’ll make paying your invoice a priority. A little nice can go a long way!
WWDD: What would Dawn do?
Dawn weighs in on questions and concerns about cash flow from entrepreneurs just like you. We hope you’ll join the conversation by clicking the “reply” button below!
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-authorized 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 ton of money.
I had one 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 $500,000 to developers and are accounting on a cash basis, you're blind to liabilities.
Q: I’m in my 4th year of business. I suspect that in my first five 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 three years of operation, you need to squeeze every penny until Abraham Lincoln starts screaming.
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!
Before you go
QB Community members, what tips do you have for boosting your cash flow? Who’s given you great advice on money matters – and what is it? Share your story!
More learning, right this way!
Here are some more helpful articles about money matters, from Dawn and other QB Community experts:
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