Q: I am thinking about starting a business, what do I need to consider?
Starting a new business is both exciting and daunting, in our experience the considerations prior to start can be split into three key areas:
What problem is your business going to solve for your customers? How is your business going to deliver the solution, products or services? This is fundamental as the choice will inform the other areas. The start-up cost of a consultancy is significantly lower than a retail outlet for example.
How are you going to fund the initial stages of your business? Options to be considered; savings, redundancy, inheritance and external investors. In all cases have a realistic view of the amount needed and the time that it will take to get cash flowing into the business. I often find that physical start-up costs are well understood, where new businesses get caught out is with the timing of when cash from sales will come into the business.
Start by creating a simple plan, what needs to be done, by when and who is responsible. Make the plan achievable, if a slower / smaller start-up is appropriate then take that route.
A test to apply to your plan is, if the start-up takes twice as long and costs twice as much does it still make sense?
Once you have the plan discuss it with others, not necessarily your family and friends, although they are important as running your own business will affect them. Discuss with others who are less emotionally involved, they may well give you the objectivity that family can’t.
Q: Cash flow in my business is not predictable, people seem to take longer and longer to settle their invoices, how can I improve the flow of cash into my business?
Late payments is an issue for many small firms. So you are not alone, in a recent survey 400 firms where asked for the most common excuse they heard for late payment of invoices. “The cheque is in the post” did not actually feature – a sure sign of the death of the cheque perhaps, however they did compile a list of the top excuses for late payment.
Top excuses for late payment
- Invoice not received/lost (44%)
- Unable to pay because they themselves were awaiting a payment (32%)
- Invoice in dispute (13%)
- Person responsible for payment has left the business (12%)
- Customers attempting to renegotiate payment terms post invoice (11%)
- No contract in place (7%)
- Payment paid to different company / account (5%)
Source: Satago Ltd SME Research July 2014
The lifeblood of any business is cash, and cash flow management is one of the most critical activities for the owner of any small business. There are very few facilities available to help small firms work through the inevitable low cash periods of the business cycle, so the pressure is on for the owner to do all they can to manage late payments.
Here are a few tips to help avoid late payments:
- Ensure that when offering credit terms you asses the level of risk, do a credit check and act upon the findings, you do not have to offer credit.
- Be rigorous in applying your payment terms, firm and fair is the best approach.
- Early contact with the client confirming receipt of the invoice will flush out any issues and encourage payment to terms
- Consider options for early and easy payment, credit cards and incentives for early or prompt payment
- Make sure you have clear terms and conditions of trade to ensure that any debt is enforceable