It’s ironic that managing cash-flow — which is possibly the most important part of a start-up’s survival — is often the most badly conducted part of a business. The first and most vital requirement for all successful start-ups is that you provide a product or service to a paying customer.
There are a number of reasons why start-ups get their cash-flow so wrong and some of these are due to erroneous myths about cash.
Entrepreneurs get excited when they land their first deal with a corporate.
They do the work in record time, over-promise and over-deliver, and once they’ve submitted their invoice, the waiting game begins. Months pass by and no payment is received. They were so excited to get the work that they neglected to negotiate the payment terms. The work is done but without the payment terms the entrepreneur has very little, if any, bargaining power.
Far too often entrepreneurs make excuses like: “They are the big guys and I should be grateful for this work. They have so many departments that have to sign off the payment.” By being too afraid to confront the ‘big guys’, an entrepreneur’s cash flow quickly becomes an overdraft, while the corporate exploits the power differential. Remember, money in their bank earns them interest.
I can’t stress enough the importance of discussing payment terms upfront and documenting them in writing.
Entrepreneurs perceive corporates to be busier than they are. This is a false perception because corporates are no busier than entrepreneurs who are running their own businesses. In fact, having to manage every aspect of your business daily makes you far busier than the corporate employee who focuses on the tasks linked to their job description.
Don’t buy into the myth of ‘busyness’. If you are owed money bug the busy guy!
“They are good for the money,” is often the justification an entrepreneur will give you about their new corporate client. This isn’t necessarily true. Corporates often face the same market, cash flow and competition challenges as SMEs. They use more sophisticated terms like “restructuring” or “budget cutbacks” instead of admitting that they are unable to pay you.
Fact: Value Yourself
As an entrepreneur you must destroy these myths. Value your work, value your time, and value yourself. When you have low self-worth you will reinforce the power differential between yourself and the corporate when entering into a deal. Go in with a high level of self-worth and close the power gap.
Expectation management is important and you must be confident enough to ask all the right questions upfront, such as payment terms and processes and the requirements for registering with a procurement department. Too often corporates stretch the scope of an arrangement beyond what is reasonable. A detailed contract will give you a reference point from which to charge additional fees for services or products that were not initially included in the contract.
Too many start-ups fail because they did not receive a purchase order (PO) number and delivered the work — very often at a huge cost — only to be told that no payments can be made without a PO number.
When you close your next deal with a corporate, have the confidence to present a detailed contract outlining the deliverables and payment terms agreed to. Clarity and confidence will serve you forever.