Healthy cash flow is vital for your architecture firm. It is what will allow you to fund upcoming projects and support new initiatives. Most businesses don't properly manage their cash flow, meaning they don't have the constant inflow of cash required to meet their business goals, but fortunately, your architecture firm doesn't have to follow suit.
With a few simple yet effective tips, you can ensure that you always have sufficient cash flow to operate your business as you see fit, even if you aren't constantly turning a profit. Here are 7 tips to improve your cash flow.
1. Set Payment Milestones
An excellent way to ensure a constant flow of cash into your business is to initiate payment milestones with all of your clients. Instead of collecting the entire payment once the project has been completed, break up your payments into milestones once a certain percentage of work is done. Negotiate these milestones into your contracts before work begins so that your clients are aware of their payment schedules.
Payment milestones will keep a sufficient amount of cash constantly flowing into your business, giving you the funds you need to continue to purchase supplies or start new projects.
2. Invoice Promptly
Every business wants to be paid on time, but this can't happen if your invoices aren't sent out efficiently. Ensure that your firm sends out invoices immediately after work has been completed, or a milestone has been met. Ensure that your client's contact information is kept accurate and up-to-date, and always confirm that you are invoicing the right person, the right amount at the right time.
Accounting software like QuickBooks Online is an excellent tool to use to simplify the invoicing process. This program can be set to automatically send digital invoices to your clients, sending out invoices faster and allowing you to receive payments faster.
3. Consider Auto-Debit Solutions
Many architecture firms still rely on cheques for payments, but this can be problematic. Receiving cheques slows down the payment process as you have to wait for them to arrive in the mail, take them to the bank and wait for the bank to clear them.
A much more efficient method of receiving payments is through pre-authorized debit. Receiving your funds online and having them automatically debited into your bank account can improve your cash flow considerably. Using a program like Rotessa gives your clients a simple, accurate, and trustworthy method to make payments without the hassle of having to sign off on cheques.
When your clients sign off on a work contract, be sure to collect their banking information as well. This will allow you to automatically withdraw future payments directly from their bank account at a set date following their invoicing date.
4. Follow up on Late Payments Regularly
Keeping your accounts receivable current is vital to the health of your cash flow. You should have a dedicated person that regularly follows up on late payments; without them, your firm can easily fall behind, causing your receivables to become neglected and your cash flow to dwindle quickly.
Devise a regular schedule to follow up on collections. Send out notifications to remind clients when payments are coming due and follow up with further reminders when payments are late. This will help reduce bad debt and keep your cash flow healthy.
By regularly monitoring your Days Sales Outstanding (DSO), you can keep track of your accounts receivable process to determine if it's improving.
5. Take Advantage of Supplier Discounts
Many companies delay paying their vendors as long as possible to improve their cash flow; however, this can backfire if your vendors charge interest and will end up costing you much more than it initially should have. Also, it can create bad blood with your vendors and impede your relationship when dealing with them in the future.
If you have a good relationship with your vendors, ask for early payment discounts and maximize them. Even the smallest of deals can have a significant impact on your cash flow in the long run.
6. Optimize Your Processes
One of the most significant parts of your cash flow is employee salaries. If your employees are not working efficiently, you may need to hire more to compensate, causing even more issues with cash flow.
Fortunately, there are tools that you can use which will automate specific tasks, eliminating the need for extra employees and allowing you to use the ones you have most efficiently. Programs like Zapier will enable you to automate a whole host of different processes, and you can use QuickBooks Time for time tracking and QuickBooks Online to manage your bookkeeping. Tools like these minimize the need to enter data manually, which is hugely time-consuming and tedious.
7. Outsource Non-Core Tasks
Many businesses try to stay away from outsourcing, assuming that it will cost them more money. This simply isn't the case. Hiring an in-house employee for tasks like bookkeeping, HR, and marketing can end up costing your firm a fortune in payroll, deductions, and benefits, just to name a few. When you choose to outsource, you get access to a skilled professional without all of the extra costs, plus it saves you time on hiring, training, and managing.
One of the most important aspects of improving your cash flow is to stay on top of it and actively track it. Having constant visibility will allow you to make adjustments immediately before your cash flow suffers. Forecasting is a crucial part of cash flow management. An accurate forecast will enable you to anticipate future revenue and expenses and address issues before they arise.
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