Home > cashflow, Small Business > Small business killer #1: Cashflow

Small business killer #1: Cashflow

This will be the first entry in a series I’m calling “The Small Business Killers”. Unfortunately the list of problems that can sink a small business is very long. My goal here is to provide real actionable steps that can be taken to mitigate the impact these problems can have on your business. So let’s get started.

Poor cashflow is like the zombie apocalypse we see in so many horror movies today. It starts out a small problem, an isolated outbreak, but over time it builds and builds, mostly under the radar, until your business becomes overrun by it and unable to survive.

What’s worse is that, just like zombies, it spreads from company to company. Company As bad cashflow causes them to pay their vendor, Company B, slowly, who in turn has to pay their vendor, Company C, slowly as well, and so on and so on.

The good news is that there is hope. A few behaviors added on a regular basis can dramatically improve your cash position.

Step 1 – Accounts Receivable Analysis

Usually, the root of any cashflow problem lies with our customers. It is an unfortunate coincidence that the people responsible for keeping us in business can also be the cause of our demise. The first thing we want to look at is who owes us money that lies outside our terms of payment. Depending on your terms, you’re going to want to focus on anyone who is 30-45 days past your standard.

Step 2 – Collection calls

Nobody wants to make these calls. They are however, the single most powerful thing you can do to improve your cashflow. Not only with they help you collect funds that are outstanding now, they set a future expectation with your clients that payment is expected on time and that will help you collect future funds. I want to make an important distinction here, I very specifically said ‘call’. I know it’s common place for a lot of companies to send paper statements or emails about outstanding balances. The WORST collection call is still FAR more effective than even the best email or paper statement.

To make it easy for you, I’ve included 2 sample scripts below that you can use to make effective collection calls.

Step 3 – Problem accounts

One of the most difficult decisions that a small business owner can ever make is to turn away business. Despite your best efforts, there are going to be customers who simply refuse to pay you within your terms or worse yet, who agree to make payment and then don’t follow through. Despite all the negatives, it’s important to mitigate the impact these types of customers can have on your business. Cash is opportunity and by paying slow or not at all, these customers are limiting your ability to take advantage of potential opportunities that may arise. Those opportunities offer the BEST potential to grow your business.

These first 3 steps alone should dramatically increase your cashflow if you are able to commit to doing them on a regular basis.

Good luck!

collection-call-worksheet1

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