In the early days of Wealth Authority I had trouble keeping us afloat. Money was tight. It seemed like no matter what I did, I needed more money. Cash flow is a common problem for new businesses. In the early days there isn’t always enough money coming in to sustain growth and manage the business properly.
Thankfully I had help. I want to tell you about the tricks and tips I used during the very early stages of growing Wealth Authority to keep us afloat so that you can use them too. The tricks I used to keep Wealth Authority growing and thriving can be used by anyone.
What keeps some small businesses from failing is knowledge and that’s exactly what I’m going to impart you with today. This knowledge could mean the difference between owning a successful company and telling your grandkids how you once tried your hand at entrepreneurship. This knowledge didn’t come from within. No, remember I said I had help in my early days. I need to give the biggest thanks to my accountant.
Her first and perhaps most helpful tip? To pre-negotiate my payment terms when purchasing. Nearly every vendor sets payments due 30 days from purchase. Those terms can be hard to meet early on when you have a lot of things to buy and not a ton of cash coming in yet to cover those bills. Very quickly I learned to negotiate payments that wouldn’t come due for 60 or 90 days from purchase. These extended payments to vendors helped my cash flow problems tremendously. Next time you buy from a vendor, especially one where you buy from often, send them a note explaining you want to extend payment by 30 to 60 days. In this economy, most companies will accept your new terms.
Sometimes even after 60 or 90 days though I still didn’t have the cash on hand to pay my bills. In these instances I used my corporate credit card to pay invoices when they came due. This gave me another 30 days of cash flow. I caution you though that this trick only works if you pay the balance of that credit card every month. Never use a credit card as a permanent loan; you’ll hurt your business’ finances more than you’ll help them.
Before Wealth Authority provided me with a salary I did consulting for a number of other internet based companies. This allowed me to pay my bills while growing Wealth Authority into the information publishing marketplace it’s become today. One of my clients took up a ton of my time. I was writing sales letters for them, coming up with product launch ideas, drafting marketing material for their business, and bringing in loads of new customers for them. I devoted a ton of time and resources to them. Sometimes I felt like I was neglecting my own business to work for their business. After a month I had created a ton of things for them but my bank account wasn’t any bigger. Ultimately what I learned from that experience is to not wait until a project is complete to bill a major client. If one customer or client consumes a majority of your time or resources, don’t wait until the project is complete to bill them. Negotiate a progressive payment schedule with them so you have cash coming in on a regular basis.
I also learned not to be a doormat for someone else. I don’t extend credit or work for free anymore. I get paid upfront for my knowledge, work and products. Anytime I do consulting work now I require a start fee. I get a small payment before I begin any work for a client. It helps me weed out those who were never going to pay me for my services and keep my cash flow up. For Wealth Authority that meant allowing customers to pay with credit cards so the business gets paid up front. You can also choose to accept electronic transfer of funds or electronic checks as forms of payment too.
My accountant also made me open up separate bank accounts when I started Wealth Authority. Beside it giving me a more professional image (who wants to pay a business invoice with a check that says Ethan and Jessica Warrick on it?), it also helps me with my taxes. The IRS requires that you keep personal transactions separate from business transactions. They want to know just how much money your business is bringing in. The only way to ensure this is to keep all your business transactions separate. Plus when it comes time to do taxes for the business, you’ll have all the records in one place. If you try to separate all your records in March or April, you won’t be able to accurately remember all the money moves from the prior tax year.
If you are worried about not having enough cash on hand to keep your business going these tips can be a lifeline. Use them to keep the cash coming in steadily and frequently so your business doesn’t have to struggle.
Enjoy!
Ethan Warrick
