Business is Booming, But I’m Broke: The Cash-Flow Crunch

At yesterday’s Temech Conference, where over 500 religious and charedi women in business gathered in Jerusalem, I must have spoken to over 100 of them personally.

As coordinator of the conference, I was in the position of expert and many of them asked me questions about their business. One of the FAQs was:

What can I do to get my clients to pay me?

That was an interesting coincidence, because  Temech had asked me to publish a short business article in the conference booklet and I happened to have chosen the topic of cash flow problems.

This is an expanded version of that article:

business-graphics-1428656-mMany successful small business owners and freelancers share a secret shame.

They have clients, they are making sales, they are busy generating income.

The only problem is that they have no money in the bank. In fact they are in serious overdraft. Their business looks profitable on paper, yet they can barely pay the rent!

The “cash-flow crunch” is extremely common among established businesses, and it is an epidemic among micro business. Yet it is a matter of life and death for any business to overcome this problem.

Here are 6 tips that will help you get out of the Cash Flow Crunch:

1. Shorten your Payment Schedule: Many clients, especially corporations and institutions, want to pay you on a schedule of EOM + 30, 60 or even 90. For most small businesses, this causes cash-flow nightmares. You work day and night to earn “good money” you won’t see for months, meanwhile you can’t put food on the table. Solution: You have to educate your clients towards more viable payment terms. End-of-month is the longest that most of us can tolerate, and payment on delivery is often a perfectly reasonable request. Your dentist expects that. The Torah expects that. So why don’t you? You need at least a few clients with friendlier terms.

2. Yes, You Can Ask for An Advance: Many people tell me that no one in their industry gets paid in advance. I know what that’s like because I started out in translation and all my clients expected to pay me over a month after I completed the work. Then I discovered that there were certain kinds of translation projects and certain kinds of clients where a sizable advance was considered reasonable. Just a few of these clients can keep your business afloat during the dry patches.

3. No More Snail Mail: I have a theory that there are three types of mail: regular mail, express mail, and via-Afghanistan-on-the-back-of-a-snail mail. The latter is preferred by clients sending us checks. We all know the stress of waiting for an important check that was supposedly sent weeks ago. Getting paid by PayPal solves this problem in an instant. It’s worth the fees to make cash flow stress a thing of the past. Alternatively, bank transfers show up within hours and have token fees. If the client insists on paying by check, ask them to send it via courier or express mail. Offer to cover the extra cost. Or travel with your kids by bus to Beersheva to pick it up in person. Do whatever it takes to avoid the excruciating snail mail wait.

4. Ditch the Late-Payers: Clients who pay weeks or months after the expected date cause us stress and financial damage, not to mention lost time chasing them. It doesn’t matter if they are a nice people, or a worthwhile organization, or a well-known company that looks to oh-so-good on your client list. In business terms they are what we call “a bad client.” They only way you can continue to work for bad clients is if you otherwise have decent cash flow and don’t need the money to survive. When the payments finally arrive, consider them a gift from G-d.

5. Raise Your Prices: If you have a solid client base yet are suffering from a cash flow crunch, raising your prices can make a big difference. It can take confidence to up your rates, but it is the easiest way to increase earnings without working harder.

6. The Ultimate Solution: Live 2 Months Ahead: The ultimate way to free yourself of cash flow issues is to stop living from month-to-month. Instead of living on your income as it flows in (or drips in), live on your earnings from 2 or 3 months ago. Meanwhile, put this month’s revenues aside for spending in 2 months time. This removes the stress of waiting for payments to arrive so that you can pay the bills. For this to work, you need to have 2 months worth of revenues set aside. It may take you a while to save up that much but it’s worthwhile. If you achieve this, you will be able to work comfortably with any client, no matter what their payment schedule. That’s good for you because many prestigious and high-paying customers have long payment schedules.

Have you got a cash flow crunch? It’s a complex problem and there are no quick fixes. No business is immune – least of all me. As much as I’ve learned about improving the cash flow over the last 11 years, I still find myself in a crunch 2-3 times a year.

But at least it’s no longer the chronic problem that it used to be.

So consider these 6 ideas and start with one that you think is most likely to give rapid relief. Over the long time, your business will be much more rewarding as you overcome this problem.

Let me know how it goes.

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  1. says

    Self-employment is such an adventure, isn’t it? Your post is a great checklist for people who are considering self-employment for the first time, and also for those of us who are juggling, always juggling. Fighting the temptation to go get a job, just to know for sure when money will come in… My daughter is building success in her textile design business and it seems the more clients she attracts the more she must excel as a juggler. I KNOW you can relate to this, Naomi. Thanks for such a helpful post.

    • says

      You’re so right, Mia.
      People think that businesses fail because they don’t have clients. But even “successful” businesses often fail because of cash flow problems.

  2. says

    Hi Naomi, I think I was one of those 100 ladies you spoke to yesterday. Thank you for being such a wealth of information! And thank you for sharing. I am just starting out and gathering all the best tips for future reference. This topic is so important. I have always been timid about asking for the money that is due me. I suppose addressing it in the first place will at least cut down on the problem. Thanks again.

  3. Beth Shapiro says

    I think that as a person is building a small business, it is important to have a “steady stream” of income from a little job. This makes it harder to put all of the energy into the business but ultimately can provide a base of security which helps ease the financial pressure of building the business. Of course, it is a fine balance as the job can take up so much time there is no more energy for the business.

    • says

      Hi Beth,
      I totally agree. Having a job takes away the sense of desperation that many new business owners feel, which can actually harm their ability to attract quality clients.
      On the other hand, this article is more for people who are somewhat established in their businesses, but are struggling with cash flow. I wouldn’t recommend that someone get a job in that case, but rather work on increasing cash flow. No business can ever be successful without tackling this problem head on.

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