1. Get informed
If you don’t know much about managing finances in a business context, or have simply learned on the job, consider taking a MOOC (massive open online course). Universities as renowned as Stanford, Berkeley and Cambridge now offer free, online courses in as many subjects as you can imagine. These courses, designed to be completed in your own time are often gathered together for ease by websites like Coursera, which allow you to browse by category. Coursera also offers an easy-to-use app where you can enroll on courses, view tutorial videos and complete assessments.
Available courses include:
Business and Financial Modeling by the University of Pennsylvania
Finance for Non-Financial Professionals by the University of California
Managerial Accounting: Cost Behaviors, Systems and Analysis by the University of Illinois.
2. Project cash flow
There will always be incomings and outgoings that you can’t predict. However most of your expenses CAN be predicted. Things like rent, office supplies, wages, the cost of a phone line, your internet package and credit payments usually stay the same and are payable at regular intervals. Know how much you need to pay and when. This will help ensure you never fall into arrears.
Projecting your incoming cash is of course, harder. It depends on the time of year, the markets, and numerous other factors outside of your control. However, knowing how much you need to make to break even gives you a baseline target. It also means that if your payment dates are approaching and you haven’t made enough money to cover your outgoings, you have enough time to make alternate arrangements, for example, setting up an agreed overdraft with your bank.
If your business is profitable, you can use the average of your last 6 or 12 months’ earnings as a rough guide to what you’ll earn each month. However, this may need tweaking if your monthly earnings varied dramatically.
3. Agree payment terms
Make sure your clients know exactly what they are paying for and when. If, for example, they are paying you in installments for a project, make sure both parties are clear as to when the installments are due. Is it after certain tasks have been completed, or are the payments due at regular intervals (e.g. every four weeks)? Without establishing this, you won’t know whether or not payments are overdue.
Also ensure there are no ‘hidden charges’ by clarifying everything with the client at the outset. Don’t assume they know what the standard business practice is. Explain it to them. If you are building a website, is the cost of the domain name included in your fee? Spell it out in your quote to avoid confusion down the line and disagreements over payment.
4. Invoice properly and facilitate payment
Part of ensuring a steady cash flow involves invoicing your clients at the right time. Invoice the client as soon as you have completed the work with the costs clearly broken down. The sooner you send the invoice, the sooner you will be paid. It is preferable to invoice by email if possible, as you will have a record of the invoice being sent, and the client can’t claim not to have received it.
In addition, consider setting up online payments. Not only is this easier for your clients, but it means you’ll receive the payment more quickly then if they pay by check. Alternatively, provide the bank details of your business in the invoice so your customer can make a direct transfer. Again, with the advent of online banking, this is usually quick and easy for customers to do. By making the payment process as simple as possible, you’ll help ensure your customers will pay without delay.