Cash Flow 101
In this Episode
This week Leslie and Matt talk about why managing how money comes into your business is so important and cover the basics of a good cash flow system.
Matt and Les talk about the challenges of billing and collecting from clients. They outline how a system can ease the stress of sending invoices and collecting payments. How can setting clients’ expectations increase the chances of them paying you? The guys even dig into the psychology of clients and how you can make it work for you. What makes sending out invoices so hard? Why shouldn’t you talk to your clients about the invoice date? How might you accidentally be devaluing your work when you send out your bill?
The guys explore the challenges of paying your own bills and employees if you aren’t diligent about making sure your clients you. Matt explains how bad cash flow might mean you need a partner or need to go work for someone else. Also, what kind of margins should you have if you’re in the software or services business?
Matt’s 5 Basics of Cash Flow
- Know cost of services provided
- What you pay your contractors, your employees, as well as support staff like project managers and salespeople.
- Excellent margins
- I used to think 5%-10% was a good margin, basically anything over and above the hourly rate I was charging at the time.
- Learned that margins need to be at least 50% and ideally higher to account for hidden costs and to make enough profit to positively impact the business
- Hidden costs are hidden (shocker right?) which means you won’t always catch everything. Good margins mitigate the risk of something you missed turning you upside down on a project
- Disciplined invoicing
- Don’t be lazy
- Make a schedule and stick to it
- Don’t be afraid to have a conversation with a client about a bill
- SEND THEM OUT ON TIME
- Consistent collection terms established from the beginning of a client relationship
- Start the relationship off on the right foot by clearly establishing expectations at the very beginning
- Talk about when a client is expected to pay, not when they will be getting their invoices.
- Establish the payment schedule and send your invoices BEFORE that date.
- Have cash on hand to cover the lean times
- Sh*t happens. Clients don’t pay. Clients are late paying. Sales dry up.
- Have at least 3-6 months of payrolls and total expenses saved up in an emergency fund that never gets used for anything else
- Think about doing something else with your life if you can’t commit to this idea :)
Coffee Break Ramblings
(19:24) Coffee Break
Les and Matt dive into whether they prefer to get paid by the milestone or on a time schedule. Les explains what he tells coaching clients who have problems with billing and Matt tells you how he uses Every Dollar, Freshbooks, and Google Docs to manage his business and personal finances.
- Check out Freshbooks
- Check out Every Dollar, from Dave Ramsey
- Visit the new digs over at Haywire Consulting!
- Sign up for the snazzy newsletter here. Did we mention we have a designer? Yeah, that means the letter is beautiful.
- Make an appointment to talk with Leslie to see see how Haywire Consulting can help your business grow in a way that keeps you sane (because we’re told staying sane is sorta important).
Something exciting and awesome, we promise.
This Episode is sponsored by:
Arcustech is a new company brought to you by the people at Engine Hosting, specializing in managed servers. They take great pride in providing top-notch service for companies who need assistance with scaling, optimization, and recommending solutions for every project need. They have taken the experiences of the past 15 years and blended them with leading, proven technologies, ranging from redundant 10GE networks to enterprise grade SSD drives and FusionIO ultra-low latency PCIe flash storage cards to their blade-based F5 VIPRION Application Delivery systems.
Focus Lab is a small team of creative professionals located in Savannah, Ga. They create visual branding and interactive systems that enable organizations to put their best foot forward to reach their audience. The core Standards at Focus Lab support the core of what Haywire is all about: Learning new things, being honest, and making things better.