In my personal time, I serve on the executive council of a Lutheran church here in Iowa. Recently (in August of 2009), our church received a bill from a local small business for some repair work done by a local businessperson. Seems normal, right?
The work was done in 2001.
It turns out that the person had actually misplaced several invoices dating to 2001 and had discovered them behind a desk while cleaning. Incidentally, this cleaning was done because of a severe cash flow issue with the business. There simply wasn't enough cash in the coffers to pay the bills.
While this is an extreme example - and one where many businesspeople would probably shrug their shoulders and write it off as a loss - it does illustrate one key factor when it comes to small businesses.Â
If you don't bill efficiently, you're not going to be bringing cash in. If you're not bringing cash in, you're not going to be making a profit or paying your bills.
When I started my first small business, I discovered the truth of this fact the hard way. I did some computer consulting with individuals in the community, fixing their computers and recommending computer hardware and software purchases. I did this in my spare time after a nine-to-five job and, quite often, I would come home after a full workday and a few hours of repair work and simply not get the billing done. I'd leave a note for myself to do it later.
Suddenly, at the end of the month, I'd have bills due for the parts I had purchased and, due to my inefficient billing, not enough money to pay for those parts. I repeatedly loaned the business money out of my own pocket as I struggled with cash flow, simply due to my own inefficient billing.
The best solution to this problem is also incredibly obvious. Just set aside one day a week for a billing session and do all of your billing at once. Make this billing session a requirement of your week. If you have a larger business, this may be the responsibility of someone else, but you'll still have the responsibility of ensuring that they have the information needed to create those bills.
Of course, hand in hand with this is the need for an appropriate flow of information. Many small businesses struggle in their early days simply dealing with the customers, invoices, bills, and other documentation of the work provided. Start a very clear filing system early - one that you thoroughly understand. Keep it simple and ensure that everything is collected. For my business, I simply keep all paper for a given week in a single file, then file it away appropriately at the end of the week when I also do my billing.
Cash flow is the heart of any small business. After your initial startup, you're going to need a steady inflow of cash in order to cover your bills and (ideally) provide some profit for yourself. If you don't have a strong process in place to ensure that you're bringing in cash on a regular basis, your cash flow will suffer - and your entire business will suffer.
