Underemployed actor Chuck McCarthy started people walking earlier this year, when he needed to bring in some extra cash to pay the bills. The idea to charge $7 (£5.60) a mile to walk with people, inspired by the dog walking and personal training posters in his Los Angeles neighbourhood, started as a joke but gained traction due to an enthusiastic response.
McCarthy now walks up to 15 people a month and makes around $600 doing so. Although acting is still his main focus, he has since trademarked the people walking idea, launched an app, is looking into franchising, and released a company T-shirt and mug.
Finding ways to improve cashflow can present a major challenge for many small businesses and freelancers. Be it insufficient startup capital, late payment from suppliers or unforeseen expenses along the way – cashflow problems can strike even the most successful of businesses. How do savvy entrepreneurs handle the shortfall?
Diversification pays
Professional actor, singer and dancer Vanessa Heywood started her business Tiny Mites Music in 2002. She runs music groups and shows for children up to the age of five, led by actors performing her original songs and music, recorded by professional musicians.
The business expanded quickly from daycare nurseries in Heywood’s hometown of Radlett, and twice-weekly classes now take place in 120 nurseries in London and the home counties. But growth has not been without its cashflow issues. “I found myself with a big monthly freelance wage bill to pay all the actors but the nurseries were taking ages to pay lots of small amounts. I needed to think of a new way of earning larger lump sums more easily and quickly,” Heywood says.
She developed Tiny Mites Music classes for holiday parks, which she sold for £50,000 in 2009 to Haven Holidays. The fee included all materials and Heywood trained more than 150 of the holiday park’s staff to perform the shows.
Then in 2014, a conversation with a teacher friend sparked the idea for Pure Imagination Plays, shows and workshops for older children, with large puppets and voiceovers, so that one actor can present a show. Parents were asking for them too so Heywood expanded to offer the plays for parties.
She says: “We usually run four plays a month in schools and the charge for each play is about 10 times the cost of a small Tiny Mites music class. So these larger lump sums really help with the cashflow problem.”
She also employed a part-time book keeper and implemented a computerised system to invoice each nursery at the start of the month, with a reminder two weeks later, which has helped to improve regular payment.
Bridging the gap
Large companies often take so long to pay that it can cause serious cashflow problems for small businesses, who are owed an estimated £26bn in late payments. Margot James, the small business minister, has pledged to help tackle this by appointing a small business commissioner. Large businesses will also be legally obliged to report on payment practices from 6 April 2017.
It’s an issue that Charlotte Sweeney, who set up diversity and inclusion consultancy Charlotte Sweeney Associates in 2012, has experienced. “Big companies may book six months of full-time consultancy work but often their agreement will involve paying in full, after delivery. It took a year to get paid by one public sector organisation.”
The need for more continuous cashflow inspired Sweeney to launch her new business venture, Creating Inclusive Cultures (CIC), a business forum that focuses on individual cities and their requirements to create more inclusive workspaces.
Each CIC has six events a year in each city plus an app for online videos and webinars. Sweeney has found that developing different programmes and price points has enabled more organisations to work with her in different ways, and although the CICs bring in smaller amounts than her consultancy business, it’s helped create an ongoing cashflow stream. The first CIC launched in Leeds in 2015, followed by Manchester and Birmingham this year – the plan is to expand to more UK cities in the future.
Like Heywood, Sweeney also advises getting organised, digital systems in place to invoice immediately. It’s a lesson that Sarah Garrett, CEO of Square Peg Media learned the hard way.
“Lying awake at night worrying about cashflow can quickly stifle creative thinking” says Sarah Garrett, CEO of Square Peg Media. Garrett launched g3, a lifestyle magazine for lesbian and bisexual women in 2001, and has since grown the business to deliver £2m turnover annually. Square Peg Media now runs exhibitions, conferences, events and online magazines including the annual British LGBT awards.
But the company was nearly brought down at an early stage when it was owed more than £500,000 by suppliers. Garrett says: “I tried refactoring the debt with a bank offering £80,000 of the debt up front, as I thought this would improve cashflow, but it was the worst thing I ever did. If you let the debt build up for too long it gets really messy – we never got all the money back.”
Johnny Martin, the Numbers Coach, an experienced finance director, who runs Get Cash Flow Confident workshops, emphasises the importance of negotiating payment terms. He says: “Always think about when you’re going to get paid, at the time that you’re selling. You can negotiate payment terms in seven days, 14 days or for a 30% deposit up front, for example. And make sure you get the terms of trade agreed to cover the responsibilities on both sides, including things like cancellation terms.”
After her experience, Garrett employed someone to look after financial planning and put stricter credit control processes in place. She adds: “I’d also advise speaking to suppliers early if you are having cashflow problems, to let them know when you will be able to pay realistically as this can go a long way towards alleviating stress all round.”
Sign up to become a member of the Guardian Small Business Network here for more advice, insight and best practice direct to your inbox.
