Today’s video explains why you need to be constantly vigilant about Cash Flow. You can check it out here or continue with this quick read.
You may be familiar with a character in Harry Potter called Mad Eye Moody. His advice is
He’s talking about being on the watch for all things dark and evil, but let me tell you, if you don’t keep both eyes on cash flow then you’re going to end up in a lot of trouble.
Why is cash flow so important?
CASH FLOW IS THE NUMBER ONE REASON PEOPLE GO OUT OF BUSINESS.
There’s a reason why the construction industry is even more susceptible to cash flow issues than most…
Cash Flow issues escalate very quickly because of the tiered structure and snowball effect.
The advice is: Keep an eye on your cash flow at all times.
Businesses that prioritize and nurture cash flow are successful in the long term.
When Warren Buffett was asked recently what businesses he would invest in his response
“Low capital high cash flow businesses”
So companies that don’t have to spend a lot of money on premises, and equipment… and have a large amount of cash flow.
Low risk means reward.
High risk means you risk getting a reward.
Here’s one way you can improve cash flow…
In the Pre-Contract Phase
Look at the payment terms.
- You want to be signing 30 calendar days or less (20 business days).
- Look at how long it takes them to process the payment application.
- Make sure you understand what the pay cycle is so that you can budget for it.
- You need to do big-picture thinking about how their pay cycle will impact your cash flow.
- Watch out for “We’ll pay you at the end of the month”. What does this mean? The end of the month can often mean 60+ days because of how invoicing and payment terms work.
- If in doubt query what their terms mean and how they translate.
It’s never too late to start thinking commercially and getting contractually savvy. We’re here to help.
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