Cash flow lessons to keep your business financially healthy

Transcript

Sarah: Hi. I’m Sarah Sayhoun, Senior Director of Product Marketing at Sage. I look after our small business and accountant audience, and today I’m going to be speaking to Vicky and Dan, who are both small business owners, to understand what they do about late payments and how they deal with that pain point. So let’s go meet them.

Welcome. I’ll be chatting to you both today. Basically, my job is I just obsess over small businesses and accountants, and I make sure whatever we do here is all about small businesses and accountants, which is why I’m very excited to speak to you both. So Vicky, I’m going to pass it over to you first to introduce yourself, and then Dan, I’d love to hear a bit about you and your story too.

Vicky: So my name is Vicky. I own one of the UK’s leading social media agencies, and we essentially focus on guaranteeing virality. I’ve spent a long time studying the psychology behind marketing, the algorithms, strategies—all of that—to be able to work with anyone and ensure they go viral within the first seven days of working with us. I really enjoy it. It comes with its troubles, like any other business, which I’m sure we’ll get into.

Sarah: That is a very impressive proof point. Guaranteeing they will go viral in seven days—that’s bold.

Vicky: Yeah, it’s a big promise. Thank you.

Sarah: Can’t wait to dig into that. And then Dan?

Dan: So I’m the co-founder of Heights. We’re one of the UK’s leading supplement brands—all direct-to-consumer subscription. Ironically, if we go viral, it’s an enormous problem for us as a physical product business. We’ve gone viral a couple of times, and it’s one of the worst experiences. It’s not as bad as making no sales, but it’s a lot worse than making consistent growth. Selling out is not a positive thing.

Vicky: Yeah, you’ve got to be clear about why you want to go viral. For some people it’s brand awareness—more followers. For others, it’s sales. Everyone has the misconception that it’s kind of random, whereas we can say, this new product’s coming out, we want to make sure it goes viral and drives sales off the back of it. But sometimes, if people don’t do it right, it’s just a massive headache—so that’s probably what you’ve experienced.

Sarah: I’m kind of shocked by that, because you would think selling out is the dream—that’s the business goal. Help me understand why that’s so stressful for you.

Dan: If it makes you feel better, I was as naive as you. But the problem is it’s my business, so I should not have been naive at all. A couple of years ago, we’d been trying a whole bunch of marketing, nothing had really landed. Then suddenly, a tweak here, a tweak there, and everything just worked. Over the course of one summer, we doubled—we went from five million to ten million pounds. The problem is, our products are bespoke. They have unique formulations, their own ingredient suppliers across Europe, and they take a long time to make. So you have a supply and demand equation—what you think you need to create for your customers. Going from a five million pound business to a ten million pound business means double the stock requirement, and double the stock isn’t just a speed issue—it’s a huge cash requirement too, because most of our money at Heights gets tied up in stock. On top of that, because we’re a subscription company, our customers expect their products every day—no delays at all. As soon as there’s a three-day delay, we’re giving them half price next month. A seven-day delay and we’re giving it free. So the growth that summer—going viral—basically cost us about seven hundred thousand pounds. All our profit margins that year were decimated, and it was entirely a function of doing too well. We never wanted to repeat that.

Vicky: Crazy.

Sarah: Interesting. Nobody talks about that, because as someone who has spent a lot of my career obsessing over small business owners, we all know cash flow is king—it makes or breaks a small business. But I’ve never heard a small business owner tell me that being too successful nearly broke their cash flow.

Dan: It’s more successful than your best-case scenarios have planned for. You have your cash flow projections, but doubling over three months is just too much to handle. I’ve run a digital business in the past and we went viral quite regularly—it’s a dream. You just buy a bit more server space. No big deal. But with physical products, it’s completely different. And we’re a B Corp, we have strong values, we love our customers. We could have just said, sorry, this is how it is. But that’s not us.

Vicky: Product and service are so different, aren’t they? I’ve only ever run a service business, so I can’t even comprehend that. With a product, you have to be planning a year in advance and buying stock.

Dan: And I can barely imagine how to do that, even after six years.

Vicky: Yeah, I’ve always thought I’d love a product-based business—it sounds so fun to have a physical product. But service is great because I can just bring out a new service, and if it doesn’t fly, I just move on. In terms of cash flow though, the issue we have is that people can get away with paying late, and that has a massive effect on our cash. It still happens to this day. We’ve tried to put the right contracts in place, auto-billing, onboarding calls where we make everything really clear—and it still happens. I always think a lot of it comes down to my age and the age of my team. A lot of people have the perception that we’re young, so they think, “if I don’t pay, what are you going to do?”—that sort of mentality. We’ve had to really take that on board recently and think about whether we need more senior people on the team, which we shouldn’t have to do.

Dan: Yeah, just send in Gerald from accounting.

Vicky: Ha! Exactly. I spoke to Sage before about how, when I first started, it was just me with no team. I had a client in Dubai who just wouldn’t pay—he figured he’d get away with it. So I had to think outside the box. I created a fake email account under “Matt” at Socially Speaking Media, emailed him chasing the invoice on my behalf, and it got paid within minutes. Just because someone else asked for it. Which is crazy, isn’t it? My rule of thumb with anyone—and I think everyone should have this—is whatever conversation you have with your customers or clients, just ask yourself: if this were to be screenshotted and put online, would I be proud of how I come across? It’s frustrating when someone doesn’t pay you. You want to get angry. I’ve had it so many times where it feels personal. But I always speak kindly and politely, and I try to get people on a phone call, because people can be keyboard warriors in writing. It’s a tough challenge that not enough people talk about, because it can feel quite embarrassing to say your cash flow is low. It feels like a “you” problem. But I think we’ve put in place as much as we possibly can, and ultimately it’s about being kind while also not being a pushover. Finding that balance is hard.

Dan: My latest hack is to press down on my laptop, shout my rant into the computer about how much I hate the person, and then say, “Claude, turn this into something professional.”

Vicky: Yeah, that’s actually a real idea.

Sarah: I love that. I’m just laughing—I don’t have a filter either, so I’m stealing that trick. That’s one of the powers of AI. And I’m also chuckling at “Matt,” your faux persona. You know what’s funny? When we talk to so many small business owners, this bit about the awkwardness—the cringe, the almost embarrassment of asking people to pay you—you are not the first person I’ve heard say they created a fake email and a whole fake persona to detach themselves from the chasing. The good news is that payment agents are now a thing, and a big benefit of a payment agent—similar to how you use Claude—is that you give it a tone of voice, tell it what you want it to say, and it automatically takes that pain and awkwardness away by chasing on your behalf.

Dan: That’s actually one of the use cases where you wouldn’t mind that it’s AI. Normally with AI, you sometimes know it’s not a real person and it’s a bit annoying. But here, if you’re being chased for a payment, it’s because you haven’t paid. So you can’t really be annoyed at an agent—and you can’t be annoyed at the business owner, because chasing people is a rubbish thing to have to do. Sometimes people just need a lot of nudges, and it’s not even malicious — it’s just a lack of consideration, or they got distracted. So a payment agent just persistently following up is actually a pretty reasonable way to solve that problem.

Vicky: Yeah. And for you, in terms of cash flow—for me it’s relying on clients to pay. But with you, is it more about suppliers? Because I’m guessing customers just buy directly from you?

Dan: We have to pay suppliers upfront for everything before anything hits our warehouse. So we’re paying millions of pounds to suppliers months and months before the products are even made, let alone sold. But on the other side, our paid social advertising runs on a thirty-day payment term—so throughout the month, customers pay us immediately, it lands in the bank, and then we pay Meta or Google at the end of thirty days. That part of the cycle is fine. But the supplier side is a nightmare.

Sarah: That’s so interesting, because as you were saying that I was picturing a chain. And if something breaks in that chain, it stitches up your entire cash flow, right?

Dan: Exactly. And going back to the point about going viral—when we’re talking about millions of pounds, you can’t afford to be too right or too wrong. If you double but didn’t plan to double, there’s not much you can do because you just don’t have the supply. Similarly, you don’t want to spend double of millions of pounds just in case—because then you’re sitting on loads of stock with no cash left to invest in marketing. You need to get this stuff really right. Or rather, you never get it perfectly right—you just want to avoid getting it really wrong. Both scenarios are bad, but selling out from going viral is still better than having double the stock and no cash for marketing. The ideal is smooth, consistent, planned growth, which isn’t exactly how it works in reality—but that’s the theory.

Vicky: Do you think going viral was the most costly mistake you’ve had so far?

Dan: Ironically, yes—even though I never would have predicted it or expected it. I would have expected far worse things to be the most costly. But that was definitely the most expensive. And it came down to a choice: it didn’t have to cost us anything, but I think we would have lost a lot of customers. As it was, we only churned about two percent. Bear in mind, those were people who came to our website, bought a product, and their very first customer interaction with us was “sorry, we don’t have any stock”—even though we’d taken their money because everything was automated and moving too fast to contact them. A terrible first impression. So you have to make a decision right then: how much do we want this person to know we genuinely care and that this is a mess-up on our part? And you also have to think about two types of customers—the new ones you can’t stop reaching because a viral moment runs until it stops, and your existing customers who you actually care about even more because they’ve been with you for two or three years. You can’t prioritise the new ones over the existing ones. Your existing customers have to be first to receive your stock.

Sarah: That’s so interesting. I’m really curious—how does it work in a service-based business? When you’re not getting paid and it affects your cash flow, what’s the knock-on effect for you?

Vicky: We’ve had it even recently. Like I said, we have systems in place, but people can still choose not to pay, or make sure the auto-payment doesn’t come out. And it’s hard for us because we’re capped on what we can offer. It’s not like a product business where you can sell as much as you’ve got—with service, we’re completely capped. So we have a waitlist of clients. If someone ghosts us and stops paying, do we leave their spot open in case they come back, or do we bring in someone from the waitlist? But if we bring someone in and the original client comes back, we don’t have capacity. Just this month, one of our big clients completely fell off the face of the earth with no explanation, and we couldn’t bring anyone in to take their place. That’s hit our cash flow hard.

We’re trying to put late payment fees in place, but there’s only so much you can do—you can take steps to prevent it, but it’ll keep happening. The key for us is having a buffer. When I started, I’d just get money in and spend it. Now we keep a big chunk in the bank for exactly this situation. And when I was pushed for cash, I’d make really bad decisions—take on any client who walked through the door. Whereas now I’m much more selective. You make your worst decisions when you don’t have cash in the bank. Though in a different way, when I was first starting and didn’t have cash, I was a bit bolder too—slightly reckless, but bold.

Dan: There’s a difference there. When you’re starting out, you have this brilliant naivety—everything feels possible, so you feel really bullish and confident. You only learn later how much you didn’t know. But what you’ve identified is exactly right: later in your business, when it’s more mature and cash is tight, you feel super stressed. Your brain kind of shuts down from good rational decision making and you start making short-term fixes that rarely serve the long term. It’s the perfect example of how a cash flow squeeze won’t just impact what you’re doing right now, but in twelve months’ time—because you took on a bad client, or whatever the thing might be.

Sarah: And what was running through my mind as you were both talking about all these friction points is that you carry it all on your shoulders. You are the business owners—the buck stops with you. Do you actually lean on your accountant, or some type of financial adviser, during these cash flow stress points? How do you navigate through it?

Vicky: When you’re at the start, you don’t have the luxury of any of that. So I had to learn as much as I could on my own. In business, you either love the numbers or you hate the numbers. I wish I loved the numbers, but I don’t—I’m more creative. I felt pressure to be everywhere in my business and know all the financials, but I work much better creatively and leading the team. So now I have an ops director who works closely with our accountant, and they relay everything back to me. I know the numbers, but honestly I should know more of the detail—it’s just not where my zone of genius lies. I trust them to do it. But it is everything to the business, so you do need to understand it. My next step is getting a financial adviser to point us in the right direction of where we should be putting money now that we’re growing. We’re still a young business, so you don’t always have access to that—you’ve got to learn it yourself first.

Dan: I have a co-founder who went to PwC, trained in accountancy, studied economics at university. So as far as jobs you hate go, he has to do that one. I do all the legal, because I’m better with words and he’s better with numbers. Even though neither of us wants to do our respective rubbish task, you’ve got to just get on with it. Over time though, we’ve got a finance director now, so neither of us has to do it anymore. I also have an accountant and financial adviser who I really rate. I go to him a lot with questions and concerns, and over time we’ve built quite a close relationship, because this is just a stressful topic and you want someone you trust—someone who understands that it’s stressful, and who can speak with confidence, or just honestly say “I don’t know, let me research it and come back to you.” That’s also a great answer. I just don’t want to have to think about it too much myself, because thinking about it tends to stress me out.

Vicky: There’s this weird pressure on business owners to know your numbers. I always see it online: “I don’t care who you are or what level you’re at, you need to know every part of your business.” So I always used to pretend I did. But you can’t do everything and be everywhere. If you’re always working in the business, you can’t grow it. And money, being paid late, asking for payment—it’s a bit of a taboo topic.

Dan: A CEO not knowing their numbers—that’s the taboo. I’ve got an investor who said the same thing to me. I really like him, he’s a really successful entrepreneur with an amazing, well-loved business, and I have a lot of time for him. But the amount of times he’s looked me dead in the eyes and said, “You don’t know the numbers, you don’t know your business.” And I’m like—well, maybe not, but at least I’ll look you in the eyes and be honest about it.

Sarah: I’m glad you said that. Whenever I speak to small businesses, or it comes up in our research, it’s like every small business owner’s dirty little secret—not loving the numbers, not always knowing the numbers. But that’s why we have accountants. That’s why we have products like Sage. You didn’t open your businesses because you love accounting and want to study your numbers. My guess is you opened them because of the thing you’re actually passionate about—the marketing psychology, the health and wellbeing mission. That’s what I see when you talk about what you do. So I’m sitting here thinking: this is exactly why brands like Sage exist. If we’re not taking that pain away, what are we doing?

You’ve both given really good advice about chasing payments and managing cash flow. But I’m curious—have either of you figured out a way to almost avoid it all by getting paid upfront?

Vicky: It sounds really simple, but it’s just the boundary: we don’t work unless we get paid upfront. We can overcomplicate it with systems and processes, but now it’s just a standard rule—no work without payment first. It’s harder sometimes with bigger or corporate brands that have thirty or ninety-day payment terms. But I’ve learned: if they want you badly enough, they’ll agree to your terms. We’ve had companies where we’ve said we won’t start the work without upfront payment, and they’ve found a way to make it happen. It sounds simple, but you just add it into your terms, your contract, your onboarding call, and you make sure you’re verbally covering it with people every time.

Sarah: It sounds simple, but it’s one of those things that’s simple to say and hard to actually do.

Vicky: Exactly. And it can be really hard to hold your ground—if someone pushes back, it depends what stage of business you’re at and how much you want the work. At the start, I probably would have backed down, or offered fifty percent upfront and fifty percent later. But I think it really sets the working relationship off on a healthy footing, and people genuinely respect you more when you put your boundaries in place from the start rather than being wishy-washy about it.

Dan: Anecdotally, this year—we knew we wanted to go really hard in January. January is when wellness spending peaks; people are far more receptive to health messages. So as a company strategy in June, we said: all eyes on January. We knew we’d want to spend more on marketing than we’d ever spent before, and we’d need all the stock to support it. So we raised two million pounds in advance of January, with the intention of spending it all between stock and marketing in that one month. It was an aggressive plan, but it worked. We were able to plan the stock, plan the spend, and keep going at the point where it was working best. For the first time in our history, a positively-intended plan came to fruition. We went from twenty-five million pounds in December to thirty-two million pounds at the end of January. Even accounting for about one and a half million in marketing spend, that’s seven million pounds of revenue growth in new customers in a single month. Incredibly effective.

The lesson is: if you have a real insight about when it makes sense to go hard, act on it. And make sure you’re properly prepped with your cash requirements, because you need to know what you’re actually trying to achieve before you spend the money.

Sarah: And the key word there is “insight.” We were talking earlier about knowing your numbers—it’s not something you love, but you actually do know the numbers that count. You know the key insights that let you put together a successful, actionable plan. Brilliant example.

You’ve both touched on this already, but I’d love to hear your final piece of advice for small business owners still trying to find that sweet spot with cash flow. You’re both really experienced, you’ve figured enough out to be as successful as you are—so what’s the one thing that would help others navigate it?

Vicky: A really good piece of advice I was given—and it’s very business-dependent, my advice might not apply to Dan’s situation—but when I was complaining about being paid late, a business friend of mine said to me: “You’re allowing them not to pay you. Your business should be so watertight, there’s not even an option not to pay you on time. It should be like a phone contract—if you stop paying, you stop getting the service.” I hadn’t even thought about it like that. So I think just asking yourself: is it possible for people not to pay me on time? If yes, how do you reverse-engineer it so there’s no way for someone to avoid paying? I’m still applying that to this day, but it completely blew my mind when I first heard it.

Dan: Love it. I think nowadays I’d say: ask an AI—ask Claude or GPT—”what are the three most likely cash flow stressors in my type of business, and what can I put in place to make things watertight and avoid them?” Getting ahead of it upfront is so important, because adding things in after the fact feels like a negotiating tactic. If you haven’t set your terms from the start and you try to introduce them later, it becomes a bargaining chip—they push back. Whereas if it’s set out from the very beginning, it’s not a negotiation: it’s just how you do business. Most people will read your terms and think they’re fair. But more experienced people who see that you haven’t put those protections in place will see it as an opportunity to exploit that. So just make sure you start off on an even footing—with credibility, and looking like you know what you’re doing.

Vicky: Definitely.

Sarah: Thank you both so much for coming in and chatting today. I’ve genuinely learned so much, and I really enjoyed this conversation. Thank you.

Vicky: Thanks for having us.

Sarah: And for anyone interested in taking control of their late payments—you know where to go. Sage.com.

Sarah: It was really interesting speaking to both Vicky and Dan, because you had Dan running a product-based business and Vicky running a service-based agency. What I found striking was how late payments affect them in really different ways. For Dan, it’s about how he pays suppliers and the chain reaction that happens when supply and demand aren’t aligned. For Vicky, as a service business, late payments directly affect her ability to pay her team and invest in growth—and you could really hear how awkward and uncomfortable it is to have to chase someone for an invoice. But what’s consistent across both of them is the role technology plays in taking that awkwardness and pain out of the process.