The business mindfulness series: Part 1 – New beginnings

I recently became a parent. For those who have gone through this experience, you’ll know it’s an emotional one, and the way you view the world changes. Even if that change is only because you are viewing it through half-closed eyes because of a lack of sleep. For those that don’t have children, the experience is akin to your first day back in the office after a long break. There’s optimism, energy and sense of purpose.

And this got me thinking about how these peaks can carry us through the down times. In particular, the perspective you have away from certain tasks allows you the space to plan how to tackle them. There have been many articles written about how productivity and success is linked to this:

One of the habits from Stephen Covey’s renowned book, The 7 Habits of Highly Effective People talks to this, where to be effective in the long term, you need to take the time to sharpen your saw.

There’s even overused phrases such as; “Can’t see the forest, for all the trees!” and “Get perspective,” and “Helicopter view,”. But if all the research shows this to be the best way to be productive and successful, why is there such a focus on:

  • Hours worked
  • Items produced
  • Deadlines met
  • Emails responded to
  • Social media followers

There seems to be a disconnect and maybe these troughs following the peaks are of our own making?

Many entrepreneurs may have stopped reading by now, as they are thinking: This is nice in concept, but I don’t have time for this. However, this is exactly the point. Entrepreneurs should make time to reflect rather than run from crisis to crisis. This should be the top item for them on a regular basis.

My intent here is to give a simple guide that will work for entrepreneurs. I would like to give simple advice on one aspect of their business, once every 2 weeks. Hopefully as you run your business, each guide should take just 5 minutes of your time to cause you to stop and reflect.  The first item I would want to focus on is Debtor Days.

Due date

Debtors are your customers, but they are the customers that owe you money. Conversations with debtors are generally like the hard conversations you have with your mother-in-law. You need to be firm, but you can’t chase them away (or else your partner might just kill you).

However, in most business cases, if the expectations are clear between both parties, there generally won’t be conflict. This is where clear sales terms are important and managing the payment according to the terms becomes especially important.

Most systems now make this very simple. Take Sage Accounting. When creating the invoice, the system prompts you to enter your Due Date. This will either default to your pre-set credit terms, e.g. 30 days, or you can override it and put in a custom date / payback period.

So, expectations are clear. Invoices may be received by the customer, but in the memorable words from the Jerry Maquire movie: “Show me the money!”. At the end of the day, cash flow and money in the bank is how you stay afloat. So, how do you manage these Debtors?

Nurturing your little ones (new customers)

New babies need to be watched and nurtured before they can do anything independently. In a similar manner, new customers (who transact on credit) need to be watched and the relationship nurtured.  This can be hard if both parties have their own cash flow problems. So, choosing who to give credit terms to is important and needs to be closely managed.

Unlike banks and other lending institutions, you do not have the resources or time to review each customer. But I would suggest the following before giving credit:

  • Listen to Word of Mouth—if the customers lives in a small community, you’re more likely to know who defaults.
  • A quick Google or social media search can reveal a lot about a person / business.
  • Respond to your gut feeling based on the situation—watch their reaction to credit terms and price.
  • For new customers (no matter how big the order), give shorter pay back periods and higher penalties. For older, more trusted customers, extend the terms on bigger orders to show that trust has been built.
  • State of economy check—if people are struggling and you are not, extending a hand now by offering longer credit terms may pay dividends in the long term. However, if you are in financial distress, longer credit terms will make your business go under faster.

Although this won’t filter out all the defaulters, it might help you get cash in the bank sooner.

Regular check ups

However, the above sales process is probably the easiest part of it all—the tricky bit is to monitor and manage these customers. Much like a small child, new customer relationships need constant monitoring and check-ins. Again, most systems have made this much easier. Sage Intelligence is a great example of a solution that can help you manage your debtors.

We pride ourselves on the reports that we produce, not only for the out-the-box value, but because these reports can be customised to your specific business needs.

Take the below Aged Debtors report. This is currently being built for our Power BI embedded solution. This is a simple but powerful report that can help you manage your debtors.

By using the filter on the right-hand side, you can change the report to view different years, quarters or months. By clicking on different elements, you can change the report focus, i.e. focus on the outstanding balance for one customer; or drilling down into what the sales were that are outstanding.

In just five minutes, you can gain a quick understanding of who owes you money, how much they owe you and how long has it been outstanding.

So, take a few moments every now and then to sharpen your saw and use your Aged Debtors report to give you a helicopter view of the forest. Then, target which trees (debtors) to chop, so the new ones can be nurtured and grown in their place.