Millions of Americans launch their own startups each year, with over 423,153 new business applications in April 2022 alone. However, despite these high figures, only around 50% of these businesses actually survive the first 5 years. It’s therefore essential for startups to carefully manage their cash flow, with some key tips shared below:
Regularly monitor your cash flow
Whilst it may seem obvious, it is essential to stay on top of your cash flow by frequently monitoring your cash flow statements weekly or monthly. This critical data will tell you how much is coming into your business and how much is going out so it’s important to check that you’re making more than you’re spending, and if not how you can work to rectify this.
To run a business effectively, you will need to be able to clearly analyze your finances. That way if your cash flow statement is poor, you can investigate this further. For instance, your sales may be low or your products may be overpriced. Perhaps you could find a more efficient way to receive payments or try new methods to maximize your startup's revenue. Monitoring your cash flow will ensure you are keeping an eye on your profits so that you are in a strong position to rethink strategies if you need to.
Use software when possible
The cost to hire key team members such as an accountant can be colossal for a startup. Luckily, there are plenty of software’s on the market that can often do the job for you or help you cut back on your payroll since softwares may be able to replace some of your employees' tasks.
Xero, for instance, is an accounting software which has been used by many small startups as business owners can easily manage their accounts and generate reports. Better yet, because the information would be saved in the cloud, founders can easily stay on top of their cash flow wherever they are.
Stay on top of invoicing
Making sure that you send invoices off as soon as your product or service is delivered is extremely important for maintaining your cash flow. You do not want to lose track of payments and risk losing any money.
Creating an easy template that can be used for all invoices will ensure a streamlined process and save you time. Just make sure that you emphasize the amount owed and the due date to ensure that you get efficient payments. You can also speed things up further by emailing invoices rather than posting them.
Depending on your product, you could also consider asking for deposits or partial payments on orders. Charging this way will enable your company to generate enough funds to finance the materials or pay the workers needed for the job.
Consider flexible working arrangements for your employees
If you are looking to reduce costs, then consider asking your employees to work from home. With evidence that employees are just as if not more productive working this way, you could save significant funds without having a fancy office or an expensive coworking space.
Ben Swiery from consumer lending start-up Dime Alley commented on the success of this work approach for his staff members explaining how “it certainly boosted employee satisfaction and helped them to maintain a healthy work life balance.”
“Regular social events with your staff to keep the team motivated would still cost significantly less than hiring an office space, so why not try this or even part time working arrangements?” he continued.
Cut unnecessary expenditure
When analyzing your cash flow, check if there are any unnecessary monthly, quarterly or annual expenses. For instance, maybe you could save money on your bills by cutting back on utility costs through more energy-efficient appliances, or you could cancel subscriptions or services that you’re not really using or no longer need.
Another option to consider is trying to renegotiate the terms of outstanding loans or leases you may have. This could be with contractors, suppliers or distributors to name a few.
Making sure you always get the best value for money is also important. Shop around to ensure you have secured a good deal at the most competitive rate.
Sell unwanted items
Cashing in on assets is a sensible way of maintaining your cash flow. For instance, you could sell equipment you no longer need or discount old stock that is becoming obsolete. This could all help to generate some fast cash and keep your company financially afloat.
Work out what you really need. For instance, you may have some nice office art which ultimately will not help to grow your business. Selling the paintings could help you preserve cash flow.
Lease equipment rather than purchasing it
Leasing business equipment can be a wise choice as alongside getting access to the latest technology, you will avoid tying up cash. You can also expense the lease costs on your business taxes.
Rather than overspending on new equipment, think wisely about whether you actually need to own it or if it is unnecessary spending that you could manage just as well by leasing it. Holding onto liquid cash is a sensible option for maintaining cash flow.
There are also often finance deals for a range of supplies - usually with low interest or if you are lucky no extra fees. Examples include computers, laptops, printers or company phones.
Create strong relationships
Fostering good relationships can make a huge difference to staying on top of your cash flow during the early days of a startup. For instance, having a good rapport with a supplier may mean you can make payments later than usual without risking any penalty fees, enabling you to keep more cash in your account until you have made back the money. Likewise, being on good terms with lenders could be really helpful if you ever needed to borrow money.
Conclusions
Staying on top of your cash flow will contribute towards your startups’ prosperity. Being savvy and keeping organized will help you to stay on track.
It will also stand you in good stead to be vigilant and realistic. All it takes is a few smart choices and your company will be on the road to success.