With this in mind, we’ve put together some general, common sense tips to help you get to grips with your cash flow.
Follow the money
First things first, you can’t possibly manage your cash flow if you don’t know where your money is coming from and where it’s being spent. With this in mind, it’s crucial that you get to grips with your inflow and outflow. So, identify what your revenue streams, where you are spending, and how much. [Read: How I grew my third startup faster than ever before] Once you’ve gathered this information, it may be a good idea to start using software accounting tools to reconcile your accounts and produce weekly or monthly reports. When you review your costs, ask yourself whether you can cut expenditure across the business. For example, could you lease equipment rather than buy it, or sell stuff you don’t really need or use.
Detail is key but so is the bigger picture
Looking at your cash flow statements is important but it’s also vital that you keep the wider picture in mind. Your cash flow is heavily dependent on external variables such as for example an unexpected bill, higher staff costs, insurance premiums, business rates, taxes, etc., so focusing solely on your statements can be misleading. Imagine you’re late paying several suppliers, or you receive an unexpected refund on a service, such movements could make you think your accounts are healthier than they actually are.
Monitor at all times
It’s important to monitor cash flow at all times, particularly because as a startup your survival heavily depends on doing so. Keep an eye on accounts payable and chase late invoices. A late payment can have a huge impact on startup operations so try and stay on top of things as much as you can and, if you can, automate your invoicing. If you can’t quite do that, then make sure you delegate this to one person, or team, and you receive regular updates.
Create a plan
Devise a cash flow management plan but make sure it’s realistic. Customize the plan depending on your business needs but consider zooming on on things like cash flow obstacles, building a positive cash flow, and identifying daily operational expenses. Having this type of documentation to hand will also prove invaluable if you’re looking to fundraise from venture capitalists.
Think ahead
While you’re devising your plan, it’s important to think about how your decisions impact your business in the short, medium, and long-term. Think about your billing terms and how you can best optimize them. A good way to improve your cash flow would be to ask long-term clients for a deposit before you start a project, then charge a set amount when the work commences, and invoice the rest upon competition. [Read:Want to be an entrepreneur? Start by visualizing your success] On a similar note, figure out how late you can pay suppliers without risking late fees or hindering your relationships. Think about your interactions with customers and the ways in which you can incentivize them to spend with you — for example, offering discounts on early payments, etc. However, make sure you make an informed decision and figure out whether the trade off of getting paid early is worth the potential loss in revenue in the long-run. Whatever you do, make sure you do what works for you and your business because when it comes to cash flow, it’s always better to be safe than sorry. If you’ve got cash flow advice that’s worked for you and you’d like to share with our readers, feel free to submit your article here!
