Cash flow is the life blood of any business, so it’s critical to manage it vigilantly.
In an ideal world, a company will always have more money coming in than going out, but the reality for most businesses is that this tends to not be the case.
Most have to pay staff and suppliers before they get paid themselves; especially companies that work in the web agency sector – who have the same cash flow issues but work from project to project – which means the reliability of cash flowing into their coffers from customers is not as certain.
Any lag in payments is a major challenge for any web design agency, and how well they manage it will have a major impact on the health and sustainability of their business in the long term.
So, here’s our top 5 tips for any ailing web design companies out there.
1. Ask for Deposits
The first concern within a website design company when considering when to take on new projects is the viability of the customer to complete full payment on time. Once the project budgets have been established, add a deposit into the full project proposal which will be paid to get you started. This weeds out any client that is not fully committed and ensures that there are incomings at the commencement of any digital partnership between yourself and the customer.
Also, if the worst does happen and the customer backs out of the project early, a deposit at least secures some positive cash flow as a result of the deal.
2. Be Transparent
At the very start of the project estimation stage, it is important to be up front and honest with your potential client. Quote them a realistic budget that is achievable and easily measurable going forward. State exactly what the customer is getting by creating a ‘deliverables’ section in your estimation documents.
This probably won’t stop your leads from negotiating, but it will at least start the process off on a more even playing field financially for both sides.
What is also important at this stage is to remain firm on any negotiating terms, within reason. Your lead is coming to your web design agency for a service. If you hold your ground on the price and level of service you are proposing to provide, most clients will eventually amend their position if they feel you are the right agency for them.
3. Introduce Payment Milestones
As websites and web development projects are high value services, it’s important for cash flow to introduce stages in each project timeline in which a both agency and client are aware a certain payment needs to be made. Most web design companies will set up a 50% payment at commencement of the project and the remaining 50% once the project is live.
Having payment milestones built into a project timeline early on means more effective cash flow forecasting can be done and more accurate planning can be carried out as to incomings (started and completed projects) and outgoings (operational costs e.g staff wages, rents etc.)
4. Invest in an Integrated Payment Solution
In order to effectively manage your cash flow, a web design agency needs to invest in a comprehensive solution, usually in the cloud for security purposes. A system that houses all data on money coming into the business and money going out gives easy access to the information an agency will need to chase debtors and control creditors.
Service based businesses such as agencies will go through cycles in their growth (both ups and downs) month to month. An integrated financial solution will analyse historical cash flow for when the peaks and troughs take place. This helps when planning for the future.
Understanding these patterns will help you with more than just cash flow. It will assist you in managing related areas such as marketing and planning for expansion. Knowing that your agency historically has a slow month in June can help you decide to run a marketing campaign in April to generate new sales for this period, rather than run one in October for an already busy November.
5. Retain Leverage on Projects
Retaining leverage on your projects is key in maintaining positive cash flow, especially within a website design company. All of the work your agency completes should not be released to clients until all payments have been finalised and sent.
Once the project is complete and your customer has all their assets, all of your leverage has gone, so make sure everything is wrapped up financially before this takes place.