Three Keys to Business Success

Author: Larry Chester

Over the years, I’ve had the opportunity to work with businesses of every size. Some have been start-ups with just a handful of employees. Others have generated hundreds of millions of dollars in annual revenue. Different industries, different owners, different challenges. But in spite of the differences, I’ve found an interesting commonality.

Companies that are financially successful aren’t necessarily the ones with the best products, the biggest sales force, or the fanciest technology. More often than not, they’re the companies that consistently do three simple things well. None of these ideas are revolutionary. In fact, they’re mostly boring, but the results speak for themselves.

I’ve learned that successful businesses don’t fail because they ignore the complicated things. They struggle because they stop doing the simple things consistently.

Here are the three financial disciplines that every business should follow:

1. Invoice Promptly

This sounds obvious, but most companies delay sending invoices, and it costs them.

Sometimes the work is finished, but someone is waiting to “get around to it.” Sometimes an invoice sits on someone’s desk waiting for approval. Sometimes the accounting department only bills once a month because “that’s the way we’ve always done it.”

Meanwhile, the clock is ticking. You can’t collect money you haven’t asked for. Every day an invoice sits unsent is another day before the payment will arrive. If your payment terms are Net 30, waiting an extra week to send the invoice often means you’ll be waiting an extra week to receive your money.

A manufacturing company had an impressive tech stack — multiple pieces of software, each specifically designed to do one focused thing and do it well. But the complexity of the multi-step invoicing process took so much effort that they decided it was easier to invoice weekly rather than daily. They’d batch their shipments and process the invoices on Friday, like clockwork. The problem is, by doing that, they instantly lost a week’s cash flow.

The result is that your cash is just sitting in someone else’s bank account instead of yours. The companies that manage cash well treat invoicing as a critical step in their customer experience. Processing an order isn’t complete until the invoice has been sent.

If possible, invoice the same day the work is completed or the product ships. It doesn’t sound exciting, but improving the speed of invoicing is often one of the quickest ways to improve cash flow without having to increase your sales.

2. Collect Your Accounts Receivable

Sending invoices is only the beginning. Unfortunately, many business owners assume that because an invoice has been mailed or emailed, payment will naturally follow. Sometimes it does. Often it doesn’t.

Invoices get misplaced. Approvals get delayed. Customers have questions. Sometimes they’re simply paying the companies that ask first. I’ve seen businesses carrying accounts that are 60, 90, even 120 days old because no one wanted to make an uncomfortable phone call. That’s not customer service. That’s financing someone else’s business with your money.

A mid-sized law firm had significant accounts receivable. Their over-120-day balance was more than $1.6 million. The bank wouldn’t let them borrow against it because it was so old, and the firm was cash short after moving into a very nice corporate headquarters. They could have really used that money, but nobody wanted to call their clients to ask when their invoice was going to get paid.

Collecting accounts receivable doesn’t have to be confrontational. In most cases it’s simply a matter of following up regularly. Know which invoices are outstanding. Review your receivables aging every week. It’s even OK to contact customers before large invoices are due — a quick call to ask, “I just wanted to make sure you received invoice 1234. When do you have it scheduled for payment?” goes a long way.

Most customers appreciate professionalism. They expect you to manage your business. Cash in the bank is far more valuable than money listed on an aging report.

3. Reconcile Your Books Every Month

This is the discipline that ties everything together. Far too many business owners look at their financial statements months after the fact. By then, the opportunity to correct problems has already passed, and they’ve likely been making decisions based on bad data.

Reconciling your bank accounts, credit card statements, loans, and other balance sheet accounts every month ensures that your financial statements are accurate. It makes sure every financial transaction during the month has been accounted for. Without reconciliation, you don’t really know your cash balance, whether your receivables are correct, or whether expenses have been properly recorded.

The president of a manufacturing company had no confidence in his financial reporting and doubted that the profitability shown on his financial statements was accurate. When we asked him whether he reconciled not only his company’s bank accounts, but also his inventory, his accrued expenses, and his prepaid expenses, he just shook his head. A full reconciliation of those four accounts turned up discrepancies of over $500,000.

If the values in those accounts aren’t accurate, every decision you make is based on inaccurate information. I’ve often said that financial statements can tell business owners what happened during the past month — but they only tell you the truth if the bookkeeping is complete and the accounts have been reconciled.

That’s why timely monthly bookkeeping isn’t just an accounting exercise. It’s the foundation for good decision-making.

Notice that none of these three disciplines requires a sophisticated accounting system or expensive accounting staff. They’re simple habits — invoice promptly, collect consistently, reconcile monthly — but they have an enormous impact not only on cash flow, profitability, and the accuracy of every decision you’re making, but they will give you a quiet peace of mind. That’s something that you can’t hire.

The businesses that perform these three tasks month after month almost always have better information, stronger cash flow, and fewer financial surprises.

It’s easy to believe that financial success comes from mastering complicated strategies. But in my experience, it usually comes from mastering the fundamentals. Do these three things every month, and you’ll never again have to wonder whether the numbers driving your decisions are numbers you can actually depend on.