Do you feel as though Christmas has left your small business with a massive hole in your pocket, as your cashflow has taken a nose dive?  Implementing these 6 things into your processes will help turn that around and get you onto the path for financial success.  You may not even need to implement all 6, you may already be doing some of them! 

So let me help you drive your business finances in the right direction, in a simple and really easy way so you can start to kick your goals and have the greatest year yet.

Today we’ll go through my 6 key tips starting at the very beginning with prediction of your income and expense, then we’ll look at the timing of sending your invoices, how to review your spending, revisiting your finances regularly, chasing overdue debts and paying off your debts.

Let’s address the elephant in the room when it comes to planning for your income and expenses in the future:  yes a “plan” is another word for “budget” or “cashflow forecast”, which yes, are two different things.  We also understand you don’t have a crystal ball and you don’t know exactly what will be happening in the future.  But here’s the thing, neither does anybody else and that doesn’t stop companies like Amazon, BHP, Disney or Apple from preparing a plan for their income and expenses.  So let’s put all of that aside and get our heads down and give it our best shot.  Now, I’m not going to go into too much detail here in this video because I’ve already done a video on how to go about creating the plan itself and I will leave a link in the description below so you can watch it next.

Just quickly, to make sure we’re all on the same page I just want to go through the difference between a budget and a cashflow forecast or “plan” which is what we’re talking about here.  A budget is more of an “ideal” it’s where your goals are, it’s what you would like to be achieving including any new items or growth you are expecting or wanting.  It might include new product lines, advertising etc and outlines how much you, and this is the key here: how much you are allocating to that particular item.  So for example, you might be wanting to do some advertising this year, but as yet do now have any fixed idea as to cost, you might allocate $10,000 for advertising for the whole year understanding that you’ll firm up on numbers as you get a clearer idea of what you want to be doing and how much you want to be spending.  This type of approach allows for flexibility in taking on new projects of developing new customer bases or product lines. 

A cashflow budget on the other hand, is as close a representation as humanly possible of the actual cash in-flows and outflows that you are expecting.  They can be prepared on a weekly, fortnightly, monthly or yearly basis however I would always say that to make them as useful as possible you need to make them as detailed as possible and that means making them at least on a monthly basis.  They need to include all the revenue you expect to receive in a particular month and all the expenses you expect to outlay.  I always find using the last couple of year’s as a guide to help with amounts, cycles and timings really useful but you can go straight into it sight unseen if you don’t have this kind of information available.  However, it does need to be as detailed as possible so I would always recommend doing it at least monthly.

Right, now we’re all clear on that and all on the same page, why is it so important to plan for your income and expenses.  Simple:  without a goal you have nothing to aim for, no revenue targets you want to achieve and no reign on your expenses so you don’t know whether you are over-spending or not.    Given we’re half-way through the financial year is it too late to start?  Heck no!  You can create your plan at any point in time – starting is the key thing here.

My second tip is to make sure you send your invoices promptly.  Now I get it.  You’ve done the work, you’re super-busy, you’ve been trained to make the invoice a piece of art the idea being to justify the fee it contains so you’ll get to it when you can because you don’t have time right now to do it.  But here’s the thing:  the greater the distance between the delivery of the work and the provision of the invoice, the more likely it is that you will have a problem with your client paying you promptly…if at all.  Which just means you are carrying the cost of doing that work for even longer.  Finding a way to make sure invoices are issued in-line with your agreed terms if you’re on a longer contract, or at the same time you deliver your work is one way of making sure you are paid in a reasonable amount of time.  Catch your clients when they are feeling warm and fuzzy about the work you have done for them and most of them will pay there and then.

Next on my hit list of is to go through your spending with a fine toothcombe.  You are looking to split your expenses into 3 categories:  Number 1:  Essentials.  These are things which are essential in order for you to keep the lights on.  It might include things like electricity, rent, annual subscriptions to your professional body which allow you to practice or certain insurances.  Secondly:  Necessaries.  These are items which are not essential, but are necessary for you to keep the doors open.  These would be things like certain insurances, subscriptions, stationery, bank charges or telephone charges.  Lastly, Subjectives:  these are pretty much anything else and things where you really need to be asking yourself “does it need to be spent right now”?  If the answer is no, then put it off until such a time where you have the cash to do it.

Tip number 4:  don’t just set and forget all of of this, it needs to be regularly reviewed and updated.  Your plan is absolutely useless if you create it and never go back and look at it.  How often should you be revisiting it?  Well, personally I would be doing it the same frequency with which you set the plan up in the first place.  So, if your plan was set-up to look at your cashflow on a monthly basis, I would be reviewing everything on a monthly basis.  It doesn’t take a huge amount of time or work, it is merely updating the plan for actual amounts as they come to light, adding in excess balances if they exist or recognising shortfalls and helping you to understand why. 

Tip number 5:  chase-up your debtors.  Now, this one may sound like a bit of a no-brainer, but here’s the thing:  nobody likes asking people for money (well, very few of us anyway!).  So it actually makes this a really hard thing to force ourselves to do.  However there are ways to do it whereby you can take away the confrontation, which is, let’s be honest with ourselves here, the thing we don’t like and are trying to avoid, out of it.  You can start with an email reminding clients of the overdue nature of the their invoice – very often this is enough to get it paid.  If a couple of these don’t work then pick up the phone.  Talking human-to-human very often solves a problem very quickly and you will probably find there is a good reason why they haven’t paid…and it more than likely has nothing to do with you.  Failing that you could consider debt collection action if you need to and it is worth doing.  It needs to be said here, if you are clear with your payment terms, and enforce them when necessary, you will find you have very few clients who pay late or you have trouble with.

Now, the last tip I have on my list is to Plan to Pay your Debts.  Again, this might sound like a no-brainer but very often, when cashflow takes a nose-dive, the first thing to be skipped is a loan repayment.  This leads to large catch-up payments which puts even greater strain on finances, causes nasty letters to come from your lender which leads to more stress and you can see the downward spiral starts to happen really really quickly.  So,

 I recommend you treat them the same as if they were Essential items under your spending review.  They are non-negotiable and need to be paid to keep the lights on.  In this way you make sure they are always paid and and you are gradually reducing your debt burden.

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