IF I had to give one piece of advice to anyone who is thinking about running a business it would be to make sure you get your cash flow working efficiently from the outset. The success or failure of a company always comes back to one thing – the amount of cash or liquidity there is in the business.
It’s probably the most important thing I learned from my life. Every year far too many perfectly sound businesses go into administration because they simply run out of money and can’t pay the bills.
It seems that nowadays senior managers have become more interested in strategy, marketing and theory rather than concentrating on the fundamental building blocks of business. As I.T Consultant, I spend a lot of time debating cash flow with my corporate clients. I am quite strict on payment terms and I always tell them that it is unacceptable to have too many entries in the 90 day column. As a business owner, you should know exactly what payments are outstanding and how long they have been waiting for them.
Payment terms should also be an essential part of any deal negotiation. In my experience people often get carried away with winning the work and then forget getting paid. I think it’s perfectly reasonable to expect to get paid within 14 to 30 days. Every day you are not getting paid you are losing out – far too many companies are happy to sit on payments. In effect, what they are doing is using you as a source of free credit. True entrepreneurs should always have a grasp and understanding of their cash flow… it’s the foundation of any business. Remember the old adage … cash is king.