It’s a common saying that more businesses fail due to lack of cash than lack of profit. With the banks toughening up their lending criteria these days, credit is harder to access so managing your cash is even more important.
The seasonality of much of the wedding industry makes this an even greater challenge, so make sure you are not caught out with our 5 top actions.
1. Understand the difference between profit and cash
You do know this, don’t you? If you need a refresher, this Business Link article is a good place to start.
Fortunately, most wedding businesses are not selling to other businesses on credit, so avoid many of the credit control issues.
2. Create sensible payment schedules
For many wedding businesses you will be taking advance payments with bookings with the balance before delivery of the product/service.
Make sure that you are taking sufficient money to cover your expenses and/or lost opportunity should the customer cancel.
For example, if you are a photographer you will not have many up-front expenses but are unlikely to find a new booking if your customer cancels 2 weeks before the wedding. A bridal boutique must order (and pay for) the dress from the supplier – you may be able to re-sell it but probably not at full price or immediately.
Work out your situation and ensure your payment plan is appropriate.
3. Create a forecast and monitor it
It’s vital to know in advance if you are running out of cash so you can take action before it is too late.
You probably did a cashflow forecast when you set up your business, but have you kept it up to date and do you know your current cash position?
Accounting software can help with this, but a simple excel spreadsheet works too. Keep a tab on expected income and expenditure so you can see the effect it has on your bank balance.
4. Keep checking
How often do you reconcile your bank account? It’s boring, but it’s so important. Make sure that you actually have the cash you think is there.
And if you employ staff, then sadly it’s essential that you have sufficient checks in place that they can’t steal from you. Don’t think it could never happen to you and that your staff are utterly trustworthy – there are many examples of businesses ruined by an employee who gave in to temptation.
5. If it’s looking bad, take action – NOW
If it looks like cash could be running out, then don’t wait and see. Sit down and work out the best action.
Firstly look at all the ways you can cut costs.
Then see if you can find ways to increase revenue. Having a sale or a special promotion can be a short term way of bringing in additional cash.
Raising finance (organising an overdraft or loan) from the banks is another way to get over a sticky patch, but contact them sooner rather than later – at the moment they are cautious about lending and it may take some time to organise.