You know the parable of the frog? If dropped into boiling water it will immediately jump out.
But if dropped into comfortable water it will swim around and by the time the water is hot it will be too late for it to jump out.
That’s how negative cash flow hurts your company.
It never seems hot at first.
Just a little inconvenience, a bit of juggling to pay your bills.
Then you notice that your interest expenses are increasing. You can no longer juggle your cash; you have to use your line of credit to pay those bills.
Your profit, your bottom line, gets a bit smaller every month until one day it’s red.
When you apply for financing for a new initiative the lender declines, or the interest rate is very high, because your persistent negative cash flow is considered a high risk factor.
When you talk with a business valuation expert they tell you that the company’s value is reduced because of the continuous negative cash flow.
All of the impacts of negative cash seem small when they happen gradually.
And then suddenly persistent negative cash flow is the barrier to everything you hoped for.
It doesn’t have to be like this
The primary cause of negative cash flow is your Terms and Conditions. (Unless you have low sales, which is a separate issue.) T&C are completely within your discretion as the Owner/CEO.
You can choose T&C that prevent negative cash flow, or you can choose T&C that cause it.
Maybe you have some of these objections that I hear often:
“We can’t do it if no one else does.”
“How do we remain competitive if our competitors don’t do it?”
“Everyone just expects to pay later.”
I simply do not buy it.
Your primary obligation as the Owner/CEO is to ensure financial viability of the company.
For you, as the owner, and for your clients and staff. What good is all your work if the company is always on shaky financial ground?
3 Steps to Positive Cash Flow
- Change your T&C to require payment at time of purchase. If you sell annual plans, require that the payments be automatically charged on the first of the month. If payments stop, work stops.
Your T&C are included in every contract or purchase agreement. If you’re unsure how to word them, get advice from a business lawyer. Do not make it too complicated. There are NO incentives such as discounts.
- You will have to adopt a pricing model that produces fixed fees that you tell the buyer in advance. Hourly billing for any work is in complete opposition to payment at time of purchase. If you are worried about scope creep, include a provision in your T&C that specifies when a new scope/fee will be required.
- Establish an account with an online payment processor. All invoices will be sent via the processor, and the buyer will pay online via the payment link. Most processors allow the buyer to choose to pay by ACH (i.e. cash from their bank account) or by credit card. Your firm must accept the buyer’s choice and not apply additional fees.
Be sure your bookkeeper or accountant integrates your payment processor into your books, so there’s a seamless transfer of information and payments from the buyer to your company. The funds delivered to the processor should also go into your bank account seamlessly.
The time is NOW
One client after another tells me how the only regret they have about requiring payment at time of purchase and using a payment processor for all purchases is that they didn’t do it sooner.
You do not have to be that person. You can do it this week. You can take this BOLD step.
Need support to take these 3 steps?
I’m happy to help. Text CASHFLOW to 703-801-0345.
