As a technical entrepreneur, it was difficult for me to wrap my head around the concept of cash. I distinctly remember my accountant cheering me on for making a profit, while I internally asked myself why I didn’t have any money and was still eating macaroni and cheese?
It took me a while to understand profit doesn’t translate into something you can spend. Profit is an accounting term that tells you how much your business has, not how much money you have in the bank. This is a concept many growth-hungry entrepreneurs ignore. Here’s how to save your business from a cashless growth failure.
#1 Recognize Cash is King
I had an early mentor who said, the secret to success in business is the level of indebtedness. Meaning, who’s in debt to who? The thing entrepreneurs fail to understand is that having a phenomenal year doesn’t mean you can give your employees bonuses or even make payroll. This is because growth sucks cash. As you grow, cash is used to add more employees and infrastructure to your business. Remember that cash is king and if you have to sacrifice growth for cash, always pick cash.
#2 Create a Culture of Cash Consciousness
Building a discipline of cash conscious means collecting cash every time you make a sale. This means training your sales team to ask customers for a quarter of the sale up front because everything more than net 30 is a win for the organization. To align your team on this mentality, build a culture in the organization where it’s okay to ask for money.
#3 Coach Your Sales Team to Ask for Cash
Customers are receptive to your business if you’ve built the right relationship with them. Sales reps often underestimate how much they can ask from their clients upfront, whether that be terms that they ask for, credit card purchases or due on receipt. By encouraging them to implement milestones and ask for down payments, they’ll be able to retain extra cash for your business.
There’s no shame in asking for money. That’s why it’s important your sales reps aren’t afraid to ask for what they want. By making everyone on the team feel entitled to ask for the money now, as opposed to later, your sales reps will be conditioned to continuously renegotiate contracts to move milestones forward. People who are comfortable executing on their growth plan are the key players that will prioritize keeping your business afloat. will contribute to the long-term success of your business. Find those people.
Ask for a Down Payment
There are client billing options -- invoices, or down payments. Customers often shy away from down payments because they believe that if don’t have the goods, they don’t have to pay. If this is the case, justify your rationale by explaining the opportunity cost of doing business with them. Tell them there is potential for a great partnership between the two of you, but by allocating them inventory, you can’t allocate it to someone else. I’d say something like this,
“I’m 100% committed to giving you a full refund if there is a problem with the goods, but until then, I need the 10% upfront to show you’re committed to this partnership. I need to manage my cash flow to give you the best experience”.
If they don’t understand, you shouldn’t do business with them.
To prevent from growing yourself out of business, remind yourself that cash is king. By keeping this at front and center in your head, you will be conscious of growing strategically, opposed to irrationally.