Are you an entrepreneur with a creative service-based business looking for cash flow management ideas?
Keeping your eye on the bottom line is an important factor in building a healthy, growing service business. It’s even more important when you’re in the midst of an economic downturn due to a pandemic. Plan for where your business will be in the future.That’s where putting cash flow management strategies comes into play.
Book yourself an afternoon, or even just one hour quarterly to plan your business. Even if you have a strong sense of where you want to take your business, it’s not a tactical plan unless it’s written down and well defined. Break the quarter down and ask yourself the hard questions. How did you track? Did you meet your goals? Where do you go from here?”
Then, write down 3-5 goals that you’re going to accomplish in the next 13 weeks. Carefully rewrite those goals into the SMART format. Specific. Measureable. Achievable. Results focused. Time based. Write out each task that needs to be completed to accomplish each goal, making sure that each task is reasonable, and can be done in a week or less. What order do they logically need to happen? Look for gaps, add any missing tasks and then assign accountability and a date to each one.
Have a plan and just do it. Make the small decisions every day that will get you to your end goal. If you have a clear understanding of what your end goal is, and then apply SMART strategies and tactics to accomplish that end goal, the achievements will be realized.
What payment terms do you have included on your invoice? What about the payment terms of your vendors? Payment terms indicate when a vendor wants to be paid for a service or product provided. Most terms say net 30, which means the vendor wants to be paid within 30 days of the invoice date. Why? Maybe something done around that?
Small businesses don’t use the same payment terms with every client. Many businesses will extend net 30, 60 or 90 to trusted clients who pay on time and then extend net 10 or 15 to new clients. Some businesses give three payment options. For example, if a client pays upfront, the cost for services is $3000, net 30 days costs $4000, and then net 60 days is $5000. Depending on the industry, especially if it’s a small amount, payment should be due upon delivery. Perhaps offer a 10 percent discount to incentivize clients to pay upfront? This would mean taking a hit on margins, but get that cash upfront if you need some as soon as possible.
Boost Net Profit Margins
Take a look at your cloud-based accounting software of choice and find your most profitable service. All of this time, you may have been trying to sell the high-revenue services, when it may not actually deliver that much of a margin, which is the percentage of each sale that is profit after all costs are taken out. It may just be that the easy-peasy half hour job is actually very profitable. It could be your money maker!
If you offer different types of services, make a price “menu” to break down your core service packages and their costs, as well as set an hourly rate. Depending on your particular creative business, you may also want to consider a retainer pricing model. In a study done by the Government of Canada in 2012, SME Operating Performance, the average profits for Professional and Technical Services was only 6.3%. How can you improve profit margins?
- You can promote and sell that most profitable service.
- You can raise the prices of your services, especially the ones with the lowest margins. Don’t feel bad. If you sell an annual service to the same client, such as Christmas photos your prices should increase. Everything should go up 3% each year just to stay the same. Rent goes up. Wages go up. So do your service prices.
- You can stop offering discounts, and focus on the value and benefits rather than the price.
- You can evaluate every client because, honestly, some probably aren’t worth keeping. They’re always late to pay, and they take far too much time away from your gold-mine A+ clients.
- You can take a look at your expense account and find things to cut.
- You can negotiate better terms with your suppliers. Renegotiating terms with suppliers may actually be the easiest way to save your company money. If you pay your supplier in 60-90 days and your client paid you in 30, then you’re using the client’s money to pay, rather than yours. Don’t get stuck on dollar amounts, think about the terms.
Eventually, as your business evolves and expands, you may need to hire full-time staff members. Spend this time planning for the future by documenting how you work. Trust that it is a fundamental element of your business in terms of scalability and productivity. Having all those detailed requirements from your clients outlined is necessary when you outsource tasks to others. Don’t hide all that knowledge in your head. Try to replicate yourself. Run through a job to write down or record how you do it. Loom can screen record your actions through. Chrome, Mac, and Windows. Don’t just work in your business but on it.
Social Media Marketing
The most effective way to market your creative business is by developing an online brand presence, particularly on visual social media platforms like Instagram, Facebook and YouTube. What can you offer clients and potential clients? How about educational content, links to relevant articles, behind-the-scenes activities and snippets about your services you offer? Of course, all posts are best paired with engaging images and relevant hashtags. This really is a great way to connect with ideal clients, and reflect the personality of your business.
Outsource to Pros
Because of the nature of service businesses, this type of entrepreneur can feel like they can/should do it all as a one-person enterprise. Please don’t. You may want control over everything, but if you want your business to grow, you have to let go at some point and start delegating. Outsourced professionals can handle aspects of your business that are essential, but simply don’t make sense for you to deal with personally. Extremely qualified pros are accessible virtually, including executive assistants, graphic designers, paralegals, web designers, IT specialists, business advisors, bookkeepers, and accountants. By trusting others to do their specialty, you free yourself up to really work on growing your business and provide the best creative services you can. If you are looking for help, but are unsure whether to use a subcontractor vs hiring an employee, check out Subcontractor vs Employee: What’s the Difference?
Talent That Fits
As a result of the coronavirus pandemic flipping the tables, businesses are laying off and furloughing employees like never before. Meanwhile, other people are adapting to new, virtual, ways of getting work done. Some business owners have employees who do not want to return to work, while others have lists of 2000+ people looking for a new fit. If you let someone go that you’re actually happy to have gone, you might want to use this time to find someone else who is a better cultural fit. Turnover is something businesses try to minimize, so it’s smart to grow an “intentional culture,” which means continuously aligning and regulating your organization’s values, beliefs and behaviors with its business strategy. Because, “once established, an intentional culture will also attract and retain amazing talent and create an environment for increased employee engagement and high morale.”
Why not support a young, eager Canadian with help from the Canada Summer Jobs program?
Temporary changes to the program include:
- an increase to the wage subsidy, so that employers can also receive up to 100 per cent of the minimum hourly wage for each employee
- an extension to the end date for employment to February 28, 2021
- allowing employers to adapt their projects and job activities to support essential services
- allowing employers to hire staff on a part-time basis
Back to Basics of Business
Don’t worry about where you are right now in the midst of an economic downturn. These cash flow management ideas for creative service-based businesses can help you plan for where your business will be. You can’t get to where you’re going unless you have a map. Figure out what your end goal is, then work backwards breaking it down into SMART tasks plotted out quarterly. Review your pricing terms, and boost those net profit margins. Document your processes by writing them down or recording them through Loom. Market your business and engage clients through well thought-out social media posts. Outsource to pros and hire talent that fits your intentional culture.
Set time limits for your work hours, especially if you are working from home. Being a business owner doesn’t mean you have to work all the time. New ideas take shape when you take a break and let your mind wander. Now’s the time to dream and make plans of action for cash flow management. You can do this! Keep in mind, the 1918 Influenza Pandemic gave way to The Roaring 20’s, a decade of widespread economic growth and prosperity.
To learn about doing a health check assessment on your business, creating a budget, collecting payments, resetting sales targets and accessing emergency funding, read Managing Cash Flow During COVID-19.
If you want to learn about modern accounts receivable management strategies, including automated data organization with analytics and powerful cash management platforms, read How To Improve Cash Flow.