What advice do Lumbajac, Wu Tang and Flo Rida have for entrepreneurs? If their music is any indication, then it’s clear that they value cash flow above all else. Rappers and mafia types agree that without cash flow a business is nothing more than an inconvenient interruption from daytime television. Here are some concrete steps every business should take to help keep bank deposits rolling in:
1. Written Agreements…Have Them: Every business should have a written agreement with its customers. The written agreement could be as simple as an invoice or as complicated as the Magna Carta. There are good reasons for keeping it simple and for going more complicated, depending on the circumstances. The bottom line is that if a customer decides it’s not going to pay, having a written agreement setting out the terms of the transaction will make it 1,000,000,000,000,000,000,000 times easier to get paid.
2. Written Agreements…Read and Follow Them: Jerry Seinfeld once complained that “…anybody can take a reservation…the key is holding the reservation.” That’s good advice for business owners when it comes to contracts. Anybody can sign a piece of paper, but to really provide value to the business the contract must be understood and followed. Business owners serve themselves well by reading, asking questions and maybe even assigning someone
to keep track of all the contracts important to the business (especially the ones entitling the business to get paid).
3. Be a Vigilante…I Mean…Vigilant: There’s no need to react like the comic book character “The Punisher,” but if things start going south in a business relationship, it’s far better to address the situation early. If a project is starting to experience scope creep, it should be stopped and discussed right away with the customer. With a contract in place, it’s easy to determine what the agreement was at the beginning and adjust as needed. If the customer (and more importantly, its cash receipts) has fallen off the face of the earth, then more official steps can be taken.
With all this in mind, here are some takeaways for your business:
- Insist on a written agreement in every
transaction where your business stands to get paid. - Read and understand all written agreements
your business enters into, and implement a system to keep track of them.
- Stay on top of your customer relationships and
recruit your advisors to assist if things go haywire.
In my next post, I’ll talk about some of the key considerations in negotiating a fair agreement.
