Not being paid in a timely manner will interrupt your cash flow and your ability to sustain your activities.
It is important to have the necessary cash flow to run a profitable company. However, even though your projects appear to be successful and you have a lot of clients or consumers, your cash flow may be in danger if you have receivables outstanding on a daily basis.
82% of Businesses that fail do because of cash flow problems. –U.S. Bank study
Sadly, telling you this doesn’t make you value your finances all of a sudden, does it? That’s why we’re here to clarify the issue and have a simplified approach. Here are the 5 P’s:
People
You’re supposed to be able to rely on the people you work with and deal with. Your team should be reliable and good decision-makers, so that their job can only have a positive effect on the overall business. If you have employees who make secret deals or may not follow through, your company will suffer.
Policies
The key is to provide policies that control how any aspect of your business is handled. Have a policy on how to manage contracts, how and where you are paid, how to monitor and handle your inventory and resources, how to reach suppliers and clients, and more. Having consistent policy will help to eliminate people wanting to make up their own rules.
Processes
Make sure that the daily processes are as reliable and successful as possible. This can not only save you time and money, but it will also guarantee that the job is done right, thus instilling confidence and consumer satisfaction.
Profit
Understand that your profits are more than just a monthly bank statement. Instead, profits will reflect the total capital gain and the equity that you create in the company over time. Having a broader outlook than month-to – month earnings will help you determine which improvements can need to be made.
Planning
While you’re wishing for the best, you can really plan for the worse, so that you’re prepared if the unexpected happens. Have proper insurance and debt collection procedures when the cash flow is compromised.
