Money Matters: Boost Your Cash Flow In Three Simple Steps

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.

• Send invoices promptly. “Don’t let the sun go down without invoicing a client if it’s time,” says Dawn. If getting paid isn’t your priority, it won’t be your customer’s, either. Sometimes people genuinely forget when their payment is due, so don’t just assume they know what you’re owed.
• Negotiate terms up front. Explain all your terms and conditions before you send the first invoice. For example, if you expect payment “net 30” (within 30 days of the client receiving the invoice), then a payment is overdue on day 31. If you charge a late fee, make sure your customers are aware of the penalty. Just as important? Make a commitment to charging the additional fee, if and when it’s needed (not always easy, we know!).  
• Get empowered by your invoice. Yes, you read that right. Some new business owners confess sending an invoice the day it’s due makes them feel like they’re begging for money. Think again, says Dawn. “When you do work for someone, you deserve to get paid for it!”   
• Repeat after us: The longer someone owes you money the less likely it is you’ll get paid. So send that overdue invoice now!

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.

• Set up an easy-to-manage payment plan. If you’re working on a long-term, ongoing or multiphase project, sending one invoice for a huge sum at the end of a project could cause the customer to choke (literally and figuratively). Instead, plan to invoice for smaller amounts at key interim stages (which, of course, all parties have agreed to ahead of time).
• Set up an easy-to-manage payment system. Whatever billing and payment platform or system you use – QuickBooks, PayPal, Bill.com or one of countless others – make sure it’s as simple for the customer to use as it is for you. In this age of high-tech everything, no one should struggle with a cumbersome or confusing way to request, send or receive money.

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:

• How to Track Your Cash – and Keep It Flowing
• Why Your Balance Sheet Is a Truth Serum For How You Run Your Business
• Find an Extra $500 in Your Business Today
• Let’s Do the Math: Know Your Target Number