How To Avoid Making 3 of the Worst Cash Flow Mistakes
By now, your cash is flowing and you’re reading your interior design financial statements to follow the ebb and flow of the cash beyond just mere bookkeeping. You know your sales cycle, you’re tracking money due and expenses pending, and you’re able to take the pulse of your business at any time.
So, beware the top 3 mistakes that will cause your cash flow to flop. The following are major mistakes that will choke cash flow:
Mystery Bills. Your expenses should not be a mystery—every bill should be anticipated in amount and due date. Your goal is to track the bills to know the expense ahead of time. Nothing should arrive that surprises you! Coupled with the foresight of when bills arrive and come due, you must also know from where the money is coming to pay for each.
The first step is to assemble any regularly occurring bills and put them on a calendar with the amount listed in the title. Should a one-off bill come along, add it right away to your calendar.
Assuming you’re using a digital calendar on your computer or an app, you should set repeat bills to “recurring” so that it’s automatically added each month. Add an alert a few days before, and you’ll be in the know each time.
No Advance. When you engage with new clients, you must have clearly established payment terms that include an amount in advance.If you’re not taking enough money in advance from your client to do the work and instead are having to chase the cash, then you’re starting out behind and working to catch up.
The client is paying for the service, but said service requires materials and your effort ahead of the delivery. When you put together your interior design fee structure, build in the cost of materials and expenses so that you can appropriately calculate an advance.
The advance should cover your start-up expenses and the materials, and then the final should cover your efforts to put together the final product. Otherwise, you’re paying out-of-pocket and actually in debt until the project completes. That’s a really scary, bad feeling!
Paying Back. When you accept a job, the new income should not pay for prior bills. When you pay back old bills, you’re not building your profits. The goal is to manage cash so that each job pays for itself, thus anything left over is pure profit.
When you’re pricing interior design services, keep in mind the bills that will come from the projects and which the clients will be charged in advance (see #2 above). These bills must be paid in full before accepting the next project, otherwise you’re only shoveling dirt into a hole, never filling it up. The goal is to fill one hole before digging another.
You’ve Made Mistakes
Avoiding these mistakes requires some action ahead of time, maybe as early as the development of your interior design business plan. If you find that you’re doing one of these (or more!) mistakes, it’s not too late. Remember, financial issues are a symptom. There is still opportunity to correct your course. Consider your pricing strategy and make some changes if necessary.
In the Designer’s Inner Circle, you can connect with others who relate to making these mistakes at first but also who learned methods to fix them. Work with us to avoid digging a hole from which you can’t escape!
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