Tip of the Week #3: Cash Is King
James Caan CBE
Recruitment Entrepreneur Chairman | Serial Entrepreneur | Investor on BBC's Dragons’ Den (2007-2010)
My third tip of the week reflects on the lifeblood of a business; something which is often the difference between success and failure - cash flow.
There is a tendency amongst small business owners to not discuss payment terms up front. You may be negotiating an order and in the eagerness to win business from a particular client, you will overlook an issue which is just as important.
Many good businesses have suffered because they simply didn't have enough cash in the bank for their day to day costs. I regularly tell the CEOs across my portfolio that it is unacceptable to have too many entries in the 90 day column. There is very little point in having big name clients if they don't pay you quickly enough - after all you are not an overdraft facility. You have a variety of costs yourself, and for this reason it is imperative that you get paid within a reasonable amount of time.
You don't want to be in a situation where you need to go back to the table and renegotiate payment terms because you didn't think it through the first time. I myself experienced something similar very early on in my career. I realised I hadn't negotiated terms which were good enough, and I was in a situation where my staff had to be paid on a Friday but I didn't have the cash to cover it.
I was very fortunate that the employees were understanding, but I could quite easily have lost some good people. From that day on I was determined that I would negotiate terms at the time of the order, and they should generally be within that 30 day period.
This also brings me onto a final point about the way you plan your monthly spending. If you have completed an order for a client but are yet to be paid - I wouldn't even class that as revenue, therefore I wouldn't factor it in when planning my future expenditures. As I discuss in the video below - you can't pay your costs with an invoice.
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I am a contributor to Bizcatalyst 360. I am a pediatric and adult echocardiographer.
10 年Words of wisdom today in my opinion.
Credit Manager at Norton Rose Fulbright
10 年Cash = profits = survival
Mental Healthcare Professional, Trained Marriage and Family Counsellor, Thrice TEDx Speaker, Motivational Speaker, Celebrity Psychologist, Certified Couple Facilitator, Certified EQ Assessor, Certifed Brain Profiler
10 年watch me live at Sahara Samay Now
Dream Solutions Inc (Golden Crown? Pillows )
10 年agreeable that is main reason why we see many companies coming with a bang and vanish like a bubble bust
Right Ron, Operating Cash Flow (after working capital adjustments and after Elimination of one-offs) is by far the much better criteria as it eliminates potential burden through obsolete inventory and non recoverable A/R...