Most business owners assume growth is the ultimate goal. They want more customers, more revenue, and more employees.
Buyers certainly value growth, but they may pay an even greater premium for companies that can grow while maintaining a positive cash-flow cycle.
A company can appear profitable on its income statement and still struggle to pay its bills. The timing of cash matters. If the business must pay employees and vendors long before collecting from customers, growth can increase its financial pressure.
A positive cash-flow cycle reverses that pattern. The company collects from customers before it must cover the costs of delivering its product or service. That gives the business access to the cash it needs to operate and grow.
For accounting firm owners, payment timing can make the difference between constantly chasing receivables and building a stable, self-funding practice. It is also an important concept accountants can help their small business clients understand.
Why Buyers Value Available Cash
More than 80,000 business owners have completed the Value Builder Score Report, providing insight into how companies manage their financial needs.
As part of the questionnaire, owners are asked which statement best describes their company:
- We regularly or occasionally raise or borrow money.
- We keep excess cash as a rainy-day fund.
- We distribute excess cash to shareholders.
- We are unsure.
According to Value Builder’s findings, owners who maintain excess cash receive acquisition offers that are 25% higher on average than those who do not.
Cash gives a buyer confidence. It shows that the company can handle setbacks, invest in opportunities, and operate without constantly relying on outside financing.
The way a business collects revenue can contribute directly to that confidence.
How Joyride Auto Reengineered the Payment Cycle
Stan Markuze learned the value of a positive cash-flow cycle when he co-founded Joyride Auto, an online marketplace for impounded vehicles.
Before Joyride, auctions for abandoned cars were remarkably outdated. Every other Wednesday, a small group of local dealers would gather in a parking lot to bid on vehicles.
Stan and his partners moved the auction process online. More importantly, they redesigned how money moved through the transaction.
Each vehicle sold for approximately $1,000. Joyride added a 15% buyer’s fee and collected it upfront. The tow yard received its money later, when the buyer picked up the vehicle.
Joyride collected its portion immediately. It did not need to purchase inventory, wait for receivables, or invest significant cash before earning revenue.
Within two years, the company was generating millions of dollars in revenue with fewer than 20 employees. When a private equity firm acquired Joyride, it paid approximately seven times annual revenue, thanks in part to the company’s positive cash-flow cycle.
Because Joyride collected before delivering, it could use profits to fund its growth instead of relying heavily on investors. Stan and his partners retained more of their equity until the company was sold.
Creating Better Cash Flow in an Accounting Firm
Many accounting firms use a less favorable payment model. They complete the work, send an invoice, and then wait 30, 60, or even 90 days to collect.
Meanwhile, employees, software providers, and other operating expenses must be paid. The firm carries the cost and risk of the engagement while the client holds the cash.
A better payment structure may include:
- Collecting an upfront deposit before beginning a project
- Billing monthly bookkeeping and advisory services in advance
- Using fixed-fee service packages instead of waiting to calculate hourly invoices
- Requiring automated bank or card payments for recurring engagements
- Dividing larger projects into prepaid phases
- Pausing work when accounts fall outside the agreed payment terms
- Clearly explaining billing expectations in the engagement letter
These practices can reduce accounts receivable, improve forecasting, and give the firm more resources to hire, market, and invest in better client service.
Firms should always structure advance payments in accordance with applicable laws, professional standards, contracts, and trust-account requirements. Client funds that must remain separate should never be treated as operating cash.
Helping Clients Improve Their Cash-Flow Cycle
The payment cycle is also a valuable advisory topic for small business clients.
A company may report growing sales while experiencing a worsening cash shortage. If customers take months to pay but employees and vendors must be paid immediately, each new sale can increase the need for working capital.
Accountants can help clients examine:
- How many days pass between making a sale and collecting payment
- Whether deposits or milestone payments could be required
- Which customers regularly pay late
- Whether payment terms match the company’s expense cycle
- How much cash is tied up in accounts receivable and inventory
- Whether recurring services could be billed automatically
- How much cash the business should hold as a reserve
The solution is not simply to demand payment sooner. A company must offer clear value, establish expectations before work begins, make payment convenient, and deliver what it promised.
When those elements are in place, a better payment model can strengthen both the customer relationship and the company’s finances.
Growth is valuable, but growth that continually consumes cash can create new problems. Businesses that collect efficiently can fund more of their own expansion, reduce their dependence on debt or investors, and become more attractive to buyers.
Universal Accounting Center helps accounting professionals develop the technical, advisory, and business-building skills needed to manage cash flow, build stronger firms, and guide clients toward healthier financial decisions. Call 435-344-2060 to meet with our team and take your next step toward building the premier accounting firm in your area—with these lessons in mind.
