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E-Myth – “Why most small businesses don’t work & what to do about it”

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Outsourced CFO | Should Business Owners Pay Bills Late To Save Money

Business owners may think that they are running a business normally, by delaying paying their bills on time says outsourced CFO. However, business owners should not get into this habit, because it is not a normal or necessary part of build a business to pay bills late. In fact, business owners should get to the habit of paying their bills on time when they are small, so that they can scale this practice up along with their business.

The reason why business owners need to ensure that they are paying their bills on time when they are small, is so that they get into the habit of being able to understand where their margin is. If business owners do not know how much money they are making on each job, or how much on average they can stand to profit from each customer that walks through their door, they will have no idea if they are able to pay their bills on time every month or not. Therefore, outsourced CFO says that if business owners can get into the habit of ensuring that they pay their bills on time every month even when they are small, they will get into the habit of realizing that they do not have enough money to pay those bills, and they either have to cut their expenses, or they will have to increase their revenue. By learning this when their business is small, will help business owners understand how to ensure that they are profiting as they grow.

One problem that business owners often have, is they are not paying their bills on time, so they have no idea that they have unsustainable overhead. This comes down to not knowing their margins, but also if they are not paying their bills on time, they have no way of being able to gauge if their overhead is reasonable or not. And in many cases, outsourced CFO says that business owners could literally double their sales overnight, and still not be able to afford it every month. When this is the case, business owners end up falling farther and farther behind each month, but they do not realize it. Therefore, if business owners get into the habit of paying their bills on time, they will realize very early on if they cannot afford their overhead, so that they can make decisions early on when it is possible for them to do so.

One thing that business owners need to realize says outsourced CFO, is that it is hard to come back if the debts pileup in the business. In fact, it is almost impossible. When bills end up piling up, an entrepreneur is often in a worse off position than a brand-new entrepreneur is. Since one 9% of all businesses fail due to running out of money, this is often how it happens. They let bills pile up, and then they are unable to manage. Therefore, business owners should avoid letting bills pileup, so that they can help themselves ensure that they are profiting, or if they need to cut expenses to be successful.

Outsourced CFO | should business owners pay bills late to save money

Many business owners believe that it is a natural course of business to pay bills late says outsourced CFO. However, this is not good business practice, and can put business owners at risk of not only having their business fail, but it is an unethical way to run a business, affecting staff and ultimately suppliers and customers. Therefore, business owners need to learn how to run their business ethically, and pay bills on time every time.

If a business owner is unable to pay their overhead on a monthly basis, that means that they need to change their overhead says outsourced CFO. It likely means that a business owner will also need to increase their revenue, but in the short term, and unsustainable overhead means that a business owner should lay someone off. And while no business owner wants to let their people down, overhead usually contains things like bills, office supplies, utilities, bank charges and interest as well as rent and administrative staff. However, they biggest items that can affect the bottom line most are administrative staff and rent.

Outsourced CFO says it is almost impossible for a business owner to affect changes to their overhead through rent, because they are either locked into a lease agreement, or a mortgage. Therefore, the second most expensive overhead cost that they have is administrative staff. And while they do not want to let their people down, they will let their entire staff down if they continue having unsustainable overhead. Therefore, laying off staff may be the only way that business owners can change their overhead costs. In fact, often times business owners can have bills, utilities, office supplies and bank charges, or even get rid of them completely, and only make a 1% difference to their bottom line. However, by getting rid of one administrative staff, a business owner can make a fifteen or 20% difference to their bottom line, and stand a chance of having sustainable overhead for their business.

Ultimately, it is the more ethical thing to do for the team in the long run to let one person go. Because if a business owner is not able to pay bills on time, there likely not able to pay their staff on time either, and that is making the staff suffer for the business owners inability to pay them. Therefore, it is not in everyone’s best interests anymore. Besides, if an entrepreneur is unable to pay their bills consistently and on time, they run the risk of nobody getting paid when Canada revenue agency shuts down the business due to unethical operations. Therefore, if a business owner cannot pay their bills on time, even though they do not want to let one person go, laying them off is going to be better for the entire team in the long run.