How to manage cash flow in your start-up
- November 18, 2022
- Will Turner
If you read any popular business blogs or newsletters, you’ll have heard the old adage that “cash is king”.
However, with umpteen plates spinning in your start-up world, it’s something that can take time to get to the bottom of. After all, you’re desperately trying to drum up new business, and as soon as you do that, the thought of running out of cash seems a distant impossibility.
But, as all start-up owners know, cash flow management is essential to running a successful business. Get it wrong and, well, you could be in serious trouble further down the line.
Here are our top tips on how to better manage cash flow in your startup business:
Understand your business’s cash flow cycle
The first step to effectively managing your business’s cash flow is understanding your cash flow cycle. In short, this is the time it takes for your business to receive payments from customers minus the time it takes to pay your suppliers.
Let’s not forget that suppliers don’t have to relate directly to the product you are selling. These payments could be for anything, from your insurance costs to rent. There needs to be a correlation between money coming into your company and money leaving it.
Ideally, you want your cash flow cycle to be as short as possible. This means you’re not tying up too much of your cash in unpaid invoices, and you do not have to pay interest on late payments.
Manage your invoices
One of the best ways to improve your business’s cash flow is to manage your invoices effectively. This means setting up a system whereby invoices are sent out as soon as the goods or services are delivered and promptly chasing up any late payments.
It’s also worth considering offering discounts for early payment, as this can encourage customers to settle their invoices quickly.
Keep on top of your expenses
Another way to improve your business’s cash flow is to closely monitor your expenses. This means only spending money on essentials and, where possible, negotiating better deals with suppliers.
For a start-up, there’s no need to go overboard with your initial expenses; you must first grasp your business’s actual workings. Take baby steps, and you’ll ensure that your cash flow situation is managed much more efficiently.
Have a contingency plan
It’s also essential to have a contingency plan in place in case your business does experience cash flow problems. This could involve taking out a short-term loan, line of credit or even negotiating extended payment terms with your suppliers.
Additionally, have a plan in case one of your essential employee or business owner couldn’t perform due to a severe medical condition, disability, or even death. To deal with such a situation, businesses can get key man life and disability insurance (click here to know more) to get financial aid in case serious matters arises in a workplace. Having a contingency plan and procedure set to handle any kind of business issue can ensure smooth workflow and consistent employee productivity.
In short, make sure you cover all possible eventualities.
Use technology to your advantage
Finally, it’s worth using technology to manage your business’s cash flow. There are various accounting software packages available that can help you to keep on top of your invoices and expenses. This can give you more control over your finances and help you to avoid any last-minute panic.