As much as it’s a goal for many business owners to reach the six- or seven- figure money mark, it’s much more important to have a business that’s debt free, so that the profits you make are yours to keep.
And to do that you need to manage your cash flow.
Many businesses end up closing their doors because they don’t nail down the idea that spending more than you have without a way to pay the money back is a losing proposition. After all, you can’t profit much if you can bring in large sums of money only to see it flow back out again in bad loans, fees and the like.
Here’s how you can create a debt free business using proper cash flow techniques:
- Make a plan – What do you want to accomplish with your business? Make these decisions now, and keep checking back on these goals to make sure what you are spending follows your plan. It’s easy to get caught up in the latest and greatest, must-have item. But does it fit your plan? If not, pass on it.
- Make sure you get paid – As obvious as it sounds, many people forget to ask for the money owed to them. So when you need to bill someone for your services, make it a priority to do so. Put it on your calendar. To avoid being stiffed by customers, create a contract that asks for fifty percent of the final cost up front and the other half payment due upon delivery of the product. A client who has already invested money in you will work with you to get complete satisfaction.
- Make it easy to work with you – Give customers different options to pay you. Accept credit cards online and via phone. Also, accept checks and money orders if people feel uncomfortable sharing their credit card information online.
- Charge late fees – For overdue accounts, charge a percentage of the balance due as a late fee. In order to do this it will have to be clearly stated in the contract and on your website. And, for clients who have had checks returned or have incurred late fees, limit the options for payment to credit cards or third party services like PayPal.
- Use your grace period for bill payment – Stretch out the payment period for your bills as long as you can to keep disposable income. Don’t incur fees but pay as late as you can.