An “albatross” metaphorically means to be a heavy burden or something that prevents you from achieving your goals.
Negative cash flow is exactly that.
It distorts all your decisions, your operations, your client relationships and your financial future.
What is negative cash flow? It occurs when more money has to go out of the firm than is coming in during a specific period of time.
When you’re juggling which bills to pay on what date, you are not thinking about using your accumulated knowledge and expertise to deliver IMPACTs to your clients.
You’re not thinking about your clients’ needs, you’re thinking about your own.
It’s a downward spiral that no juggling can get you out of.
Only positive cash flow will free you from the albatross.
Before we go farther remember this:
It’s a mistake to think it’s about spending more than you take in.
You may spend entirely within your limits and still experience negative cash flow.
For professional and B2B services firms it is almost always that you have to pay out more on a given day/week than you are taking in.
This is because overhead expenses and payroll due dates are fixed compared to the variable dates when your clients are due to pay your firm.
This mismatch is the albatross around the neck of your firm.
No matter how much revenue (“billings) you generate, as long as your clients do not have to pay you until 30 days or more after the work is complete, you will always have negative cash flow.
The Negative cash flow albatross is a choice
Yes, you, the firm Owner/CEO chooses the Terms and Conditions (T&C) under which you provide outcomes to clients.
T&C includes these factors:
- Prices or fees
- Payment due dates
- Timing of the payments vs commencing delivery of the outcomes
Prices or fees
When your price or fee is derived from time spent on the work, you have to invoice in arrears. This means you do the work, track the time, add up the time after a month or project completion, send an invoice, and give the client 30 days to pay.
You have the choice to design projects or engagements and offer them for fixed fees. This allows you to require payment at time of purchase or automated monthly for annual plans.
The fee is known to all, the payment is expected before any work commences, and you always have positive cash flow.
No matter your industry’s typical practices, you, the CEO or Owner, choose the T&C. I have worked in industries where hourly billing and long T&C is the norm and yet I always got paid in advance because I required it in order for me to deliver what the client wants.
If a client balks, let them go.
Whatever benefit you think you’ll get from them will never outweigh the albatross of negative cash flow.
Payment due dates
This is your firm’s policy, and it is fixed and not subject to negotiation or “incentives.”
I don’t think you ever have to justify requiring payment at time of purchase. But if you think you do keep this in mind:
Your buyers are customers and clients of many companies. At least 95% of their purchases are made with cash or credit at time of purchase. Using credit doesn’t mean they are not paying. The seller gets the money, and the buyer pays off the loan over time.
If your company is not making money from lending, it should not lend. Period!
Timing of payments vs commencement of delivery
Do not be shy about requiring payment at time of purchase. If the client wants the IMPACTs you’ve promised, you start the project when they pay.
If they balk you have to look at issues other than money and payment terms.
Most likely there is a lack of trust or confidence.
Why is this? Bring it up, and unless the client resolves the trust issue in their own mind, do not start the work. Once lack of trust, always lack of trust, unless it is resolved before any work begins.
9 times out of 10 when a firm owner inquires about how I might help them, they tell me they struggle with both prices and negative cash flow.
The two go together. You must give the buyer a fixed price in advance in order to get paid at time of purchases.
When you have both, cash flow is always positive and fees will increase because they are tied to IMPACTs the client values, not to your time which the client does not value.
If you think it’s time to get the albatross of negative cash flow off your next, text CASH to 703-801-0345.
