5 Tips to Avoid a Cash Flow Catastrophe

{3:21 minutes to read} “How can my business be broke and profitable at the same time?”

Most business owners will agree: ebbs and flows in business can create a cash flow crises. What if you have steady business activity, but onboarding new contracts—and payment for those contracts—takes an unprecedented amount of time?

Oftentimes, onboarding contracts can take up to 90 days. Essentially, this means you’re responsible for putting out resources—such as payroll or equipment—without getting money back right away. This is why it’s important to have a strategy for how to manage that issue.

In order to take your company to the next level, consider these 5 tips to successfully manage cash flow issues:

1. Talk to a lending institution. You shouldn’t be bidding on contracts, especially government contracts, without having a cash flow management strategy. While many of us might be hesitant to talk to a bank, perhaps because of credit issues, there are lending resources for almost everyone. The terms and conditions are different for individuals with less than perfect credit, but there is typically something out there for everyone. Do the homework, find out what kind of financing is available, then ready yourself to do business.

2. Evaluate revenue performance. As you start bringing on larger and more profitable clients, you may find yourself wanting to give yourself a raise, expand staff, or reward yourself in some other way. Before you do that, I recommend you take a close look at finances. You want to see how your contracts are performing and what their profitability is before celebrating the win.

3. Create a financial team. Each member of your financial team should be focused on different financial aspects of the business. In my business, we have an accountant, bookkeeper, tax planner, and a financial planner who are all involved before we bring contracts on. They help us understand what the impact of those contracts are going to be on the business and how we should manage the cash. Having this team in place has been life changing. I’ve gone from struggling with cash flow management to having a strategy for dealing with it.

4. Review relationships with vendors and customers. Part of cash flow management involves how you pay your bills. Look at where you can negotiate payment terms with other vendors without impacting your credit. Take a look at some of your non-government clients to see if they pay faster. It’s important to strike a nice balance.

5. Implement automatic invoicing. It is critical to have a system that ensures accurate and timely billing. While getting paid on government contracts can be problematic at times, it usually evens itself out after the onboarding process. What many clients struggle with is getting the information they need to get the bill out on time. For each day that billing is delayed, you’re either spending money you don’t have or experiencing a cash flow crunch.

Government contracting is great for increasing business revenues. However, be aware that there is a turnaround time for onboarding new business—government or not. This is why it’s essential to have a multi-faceted cash flow management system. If you have questions about business management or need assistance with government contracts, please contact me today!