I have a pretty dry sense of humour, and hopefully you take the approach taken with this week’s topic in the spirit in which it is intended…with humour.  Yes these are serious problems, but sometimes, we need to view them from a different stand point and humour can help. 

There are so many problem solvers out there around cashflow that it can be a little overwhelming.  So instead, today we’re looking at the 9 ways guaranteed to make sure you have a cashflow problem, continue to have sleepless nights and stay on the path you’re currently on with no hope of success or growth.

Even in today’s technological world, cash is still the lifeblood of any business. It is like the oxygen needed for the body to survive.  It flows in and around to keep it alive. A shortage of it will suffocate and stifle the ability of the business to actively pursue it’s goals.  A lack of it entirely will choke the life out of the business completely and leave you, the owner stressed, tired and quite possibly broke.

Not something many of aspire to, but surprisingly nearly 90% of the businesses we work with have a problem with their cashflow in some way shape or form.  Now we aren’t talking bad people, in fact many of them are so smart it’s not funny, so why does it happen?  I think it comes down to a few reasons ranging from not managing clients right through to overspending.

Number 1:  Don’t Monitor Your Spending

Hands down the biggest reason for a business to have a cashflow problem is quite simply:  it doesn’t keep a close eye on what it spends.  You want that new piece of equipment, fine go off and buy it.  Don’t run the numbers to make sure you can afford it, just go apply for the equipment finance or pay the cash and satisfy the urge for the new shiny toy. 

For many, the idea of having money in a savings account “doing nothing” is irresistible and the urge to spend it is high.  In addition, the idea of living within a budget, let alone sitting down and preparing one is so constraining, they simply don’t do it.  The sad reality is, without doing these things you most likely will ensure you live a life which is so much more constrained you won’t be able to do anything. 

A “cashflow budget”.  It sounds boring and “grown up” which I’ve got to be honest, is something which business ownership can quite often be.  But for a few hours of your time, you can knock up a 12 month projection which will give you at least a little insight into what you expect to be doing and how you are going to afford it. Sticking to it is another matter entirely.

But anyway, today’s session is about what to do to guarantee nothing will change in your business, so, I give you permission to go and buy whatever new shiny object you feel you need without considering the consequences. Scratch that itch, satisfy the urge, go shopping.  Enjoy.

Number 2:  Don’t manage your money

We’ve already established that overspending is a great way to guarantee your business will have a problem with it’s cash supply.

But what do you do with it when you get it?  Well, one thing which will definitely guarantee you won’t have any visibility over anything, is to keep all your money in one bucket. You will never know if you have enough money to pay the tax bill, make payroll, pay super, pay your suppliers.

One of the things we use with all our clients is the “bank accounts as buckets” principle.  We use it to make sure there is enough money to go towards different areas of the business. We don’t go to granular, it’s not about having 50 bank accounts, one for each different thing the business does, it’s about covering the bases.  So there’s a bank account for the profit we want to be making (because yes, it is a business, not a charity), a bank account for the compensation to owners for the risk they’ve taken in setting up the business, one for tax, one for income, one for expenses.  For some clients we even do one for payroll.  Visibility is the key here.  It’s what makes the difference between a relaxed business owner, and an over-stressed one.

But hey, you don’t need that, carry on using one bank account for everything, I’m sure you have it all tracked in your head.

Number 3:  Take your time to bill your clients.

For lawyers, accountants, financial planners this is a particular favourite.  It’s because the bill needs to be such a work of art it can be framed.  Quite often, the bill will be longer than the advice you have provided, why?  You’re trying to demonstrate your value and justify your fee.  The reality is, a client who is billed on time generally won’t care, the only time they do care is when it’s taken you 3 weeks (or for some of my clients, 3 months) to bill them.  Bill them while they still remember what the service was for, and the satisfied feeling they have from dealing with you is still there.

Phsyios, doctors, vets, you guys don’t generally have the same problem.  The service you provide is somewhat more obvious and the price is what it is, you prepare the bill based on a template and payment is immediate.  Not to mention the impact of guaranteed payment from the various different insurers or government agencies who cover your patients.

Within our own business we use templates to prepare the invoice for our clients.  The template covers all the more common things we look at and can be changed to suit needs on a client-by-client basis.  It has taken the time to complete a client invoice from around an hour to no more than 5 minutes. The bill is given to our clients together with their work, and we work on a “payment on delivery” basis (although, I do tend to give clients 14 days to pay just because I want to be nice…don’t abuse the privilege though!).  It was a game-changer, it meant anybody in the business could prepare the invoice, not just the member of staff on the job itself, and sped up the time with which to prepare the invoice.  Win:win.

What it won’t do is guarantee uncomfortable invoice conversations, slow payment and a strain on your cashflow so I totally don’t recommend you do it.

Number 4:  Don’t chase up slow or late payers

So let’s double down on our slow invoicing and bring in slow playing clients. If you are slow to issue an invoice to clients, they will be slow to pay you (if you don’t respect your services enough to bill straight away, which should they respect you enough to pay quickly? This is the oldest one in the book, don’t act all surprised when it happens to you.

So how do we make the pressure a little higher in this instance, we don’t bother to chase them either. As I mentioned before, we work on a “payment on delivery” basis.  This means we expect our clients to pay for their service when they receive the deliverable.  After all, you wouldn’t leave the supermarket without paying would you? (I’m sure Woollies would allow you to leave with a trolley load of goods on the promise you’ll be back in a week to pay right?).  Whilst I like clients to pay immediately what I don’t often tell them, is that I’ll give them 14 days before I’ll ask them for the money. I consider this a courtesy move, we’re building relationships with these people and a little courtesy on my part can go a long way. 

Just don’t take longer than 14 days, because then we’ll start asking you, nicely, when you intend to pay. The idea is, you want them to pay as quickly as possible after the service has been provided.  This is where if you’re a doctor, physio, or vet you have a much easier time of it.

But, if you want to guarantee you’ll continue to have problems collecting cash from your clients, I don’t advocate contacting them at all, leave them to pay in their own time and whatever you do, don’t remind them the invoice is sitting there waiting to be paid.

Number 5: You Don’t Bill what either you or the job is worth

Yes yes, we live in a competitive world, there’s more than one legal practice, or financial planning practice, or one [insert type of practice here] out there, so we can’t charge too much because the client will use them next time.

Wrong. Well, partly wrong.  Mainly wrong.  No, definitely going with WRONG.

There are many reasons why a client will buy from you over and above another professional out there, it’s not just the dollars they need to spend.  Yes you’re always going to have clients who are more fee sensitive than others, but it all comes down to value.  Show them the value and make sure the perceived value is higher than the bill and they’ll pay whatever you want them to.  How do you think big firms like Ernst & Young, Minter Ellison, McKinsey get away with charging what they do?  They’re really good at articulating their value.

Undercutting your competitors is just a race to the bottom, it doesn’t matter what industry you’re in.  Build relationships with your clients, know everything you can about them (using a CRM helps a lot with this), and what’s more: remember them.  It was my biggest point of annoyance with my old GP (he’s since retired).  I was a patient of his for nearly 30 years, and yet, every time I saw him, he made me feel like he didn’t remember me. I literally only stayed with him because there was nobody else in the practice I wanted to see and I didn’t have the time to research for a new one.  It became a moot point when he retired (and even then, he only told me because I happened to be in the clinic on his last day). Taking the time to read through a file before your client enters the room just to refresh your memory is often enough to guarantee at least a 10% premium on your competitors.

But what am I talking about, this is supposed to be about guaranteeing you a stressed, cash constrained future, continue to compete on price.

Number 6:  Inexperience and chaos…a match made in hell

We aren’t talking technical inexperience here.  Presumably if you are running a professional services business you have enough experience to tackle most problems.  What we’re talking about here is business inexperience. An inexperienced business owner will have no idea what their competitors are doing to run successful businesses, will have no idea how their overall industry is performing, won’t be alert to improvements in the way a business can be conducted, won’t see the need for marketing and certainly won’t have any systems and processes.

All in all, their business will look chaotic, the owner will be stressed, tired, always running from one fire to the next. Is this you? 

To get around this, we will ensure our clients have the necessary research in place, the necessary tools to help guide them about what their relevant industry is doing. We can do this because of the number of clients we see in each industry, because technical experience is something we are paid for.  It’s not the whole picture, the client themselves needs to be talking to other business owners in their field, to be watching what they do with a view to improving their own business in the future.

When it comes to systems and processes, these are necessary for every single business if it has any intention whatsoever of being remotely efficient.  Even if your goal is to remain a “one-man-band” you need systems to help you conduct your work in the most efficient way possible, to ensure client needs are met, to ensure that each client experience is the same…to make sure you don’t lose important documentation.

But it can be hard work, so if you feel it’s too much, feel free to continue as is because it will certainly guarantee you more time in chaotic territory.

Number 7: Poor Quoting

So let’s be honest here, when asked for a quote, how many of you actually spend the time to do it properly, or do you just take a “best guess” approach? How’s it currently working for you?  I’m willing to bet you quote for everyone who asks for one too.

I’d love to be able to say quoting is something which is done well, but by the vast majority, it’s not.  This is because there are so many unknowns out there, how can we possibly provide an accurate figure? This might be true, but nonetheless, we still have to do it.

I think our mistake (and yes, I’m including myself in this bucket) is a tendency to think we have to provide a concrete number.  To be clear here, the client is asking for an estimate so they can plan for the cost, not to be provided with a detailed breakdown before we start looking at what’s going on. We are not plumbers, we are not able to look at a toilet and see clearly a broken pipe, quote for the parts and our labour to fix it, for us it’s just not that simple.

So, we should be quoting a window.  The lowest price point being what we think the price will be in a “best case” scenario, the highest, the “worst case”. In the spirit of sending messages to clients, this tells them what they need to know: roughly what the cost is, and also that there is a degree of uncertainty while you look into their affairs.

Which brings me to the next point: don’t just guess at the number, based on what you are being asked to do, sit-down and realistically look at what needs to be done and what the cost looks like for that type of work.  Include the time it takes to quote in that cost.

And while we’re on that point, what do we do about people who just want a quote from us to compare against others?  Simple, politely decline.  Those clients will leave you for cheaper fees as soon as they appear, so don’t waste your very valuable time and experience.

But I forgot, you have plenty of time and resources to burn, so sure go ahead, continue with your finger in the air policy I’m sure it’s working for you.

Problem 8: You don’t have a plan for a cash surplus

So yay! Despite all the odds you actually managed to scrape together a surplus. What do you do with it now? Just let it sit there burning a hole in your pocket? Spend it? Pay off some loans? Invest it?

You see, the trick isn’t just making a surplus, it’s knowing what to do with it. Growing your wealth is more than having money in a bank account, its about having assets, about providing yourself with a security blanket, ensuring you won’t be left out in the cold should you have run of bad luck in the future.

The mistake you make here is thinking you know what to do with it yourself without seeing a professional.  You see, a professional has years of experience helping people, years of seeing what works well and what doesn’t. They listen (well hopefully they do!) to what their clients want to do and are able to guide you in the right direction to best help you.  For you to be able to do the same thing you would most likely have to spend weeks researching and even then not quite have the right idea.

Problem 9: No strategy or plan

Come on, who has time to come up with a strategy for running your business?  I mean, who needs to know where you want it to go?  It’s I your head and that’s what counts. Your team only need to do their work, they don’t need to understand what the direction of the practice is, and you well, it’s all centred around getting the work done, growing the client base, generating leads.  Job done.

Let’s just stop here and let me ask you a question.  If you patient came to you with a serious illness, one requiring lengthy and involved treatment, would you just wing it or would you put together a strategy? And wouldn’t you then communicate that strategy with everyone involved with providing that treatment?

I’ve had 3 children.  I’ve had two different obstetricians.  My first one was seriously old school.  Great at his job but did kind of have the assumption that I knew what was going to happen and how so I didn’t really need much hand holding.  Sadly he was the obstetrician for the first two, when I had no clue of what to expect.  My obstetrician for number 3 was completely different.  At the equivalent of a “discovery call” I was given an outline of the standard plan of action they would expect me to follow and the timeframe it would occur in.  During our 9-ish months together we played with the plan to account for things like low iron, the needs of my other children (including the business!).  At every stage I knew what was going to happen, why it was happening and the cost if there was one.  I was reminded of what needed to happen. I loved it, I would and do recommend her to every pregnant woman I know. I felt looked after and secure.

All I’m asking is that you do this for your business and your team, without it, you are guaranteed to a life of stagnant purgatory.

Business ownership is a long journey and can often be hard and boring.  Don’t make it worse than it needs to be by guaranteeing a struggle. Maybe use a little reverse psychology to take a more honest look at your own business and play with it a little.  Mix things up, have some fun, enjoy the journey you are on.

Thankyou for watching, I will leave you with this video to watch next and I’ll catch you in the next one!

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