Launching your own business is not that easy. Many entrepreneurs who go solo find themselves in deep trouble due to a lack of experience in key business aspects such as cash flow.
It is estimated that 4 out of 10 startups fail within five years of operations, and one of the contributing factors to failure is the firm’s inability to manage cash flows.
In this article, we will discuss cash flow management tips for startups.
But first, it is important to understand what cash flow management is.
Cashflow management is a process that a business uses to monitor the cash inflow coming into the business and money flowing out. It makes sure that the money coming in is always greater than money going out.
A simple example of inflow is revenue after selling a product, and an outflow is the manufacturing cost of the product.
1) Cut out expenses
All businesses want to make a profit, but during the opening phase, it can be difficult. And most companies have to rely on raised capital to keep operating. However, the money will run out soon, and therefore it is integral to control your spending.
You can use a spreadsheet to manually input and monitor your spending, but some other software can automatically keep the record for you and save your time.
However, we recommend that your business uses the latest software that is more secured and not prone to human errors. Ensure to track your finance daily as you will stay up to date with any issues that may develop.
You can also start to re-negotiate the loan terms with the lenders and check if they willing to make any amendments.
2) Sell unused assets
Holding on to the inventory you no longer need is of no use. Instead, sell the assets that can get you quick money that you can invest in your business. The unsold and unused assets can take spaces and can cost you space that can be used for something else.
3) Building trust with customers
Building trust can help you get loyal customers. As a startup, you should offer customer-friendly policies to strengthen customer relationships. Your business should always strive to give the best possible customer experience.
Prioritizing your customer will help you identify their needs and how you can respond to them.
4) Maintain a cash reserve
As a startup, you can expect many shortfalls. It happens to everyone, even with businesses with a top-notch plan. Your survival would depend on how your business deals with the shortfalls. And that is why maintaining a cash reserve is necessary, as it would help you get through tough patches.
5) Handle your money better
Unless it is necessary, you should not handle the money for your business but rather hire a professional accountant for the job. Not only would it help manage your money better, but it would also give you more time to focus on other aspects of the business.
You can also automate your cash collection by making the most of technology. Many businesses now offer cashless payments as it makes things easier for them and their customers. The transactions are stored automatically, and you don’t have to input the trades on paper manually.
6) Give out discounts
Introducing exciting discounts for early payments will get the money coming in. It might affect your profit margin and boost your product sale. You can also ask your suppliers for an early payment discount to cut out the additional cost but make sure you maintain a healthy cash reserve.
Almost 4 out of 5 businesses believe that discounts are an important cutumer acquisition startagy.
7) Hire smartly
If you recruit top talent and a professional, the worker will do a better job than multiple mediocre workers. These workers can assist you in creating a healthy business with minimum mistakes.
Studies have shown that it can take over $4000, on average, to hire an employee. That is why you should be very careful and smart with your hiring strategy and only hire people that can improve your business.
Final thoughts
No matter how brilliant your business idea is or how thoroughly you have planned, there is no guarantee for success. It can go all in vain if small things like failing to manage your cash flow take place. These records are necessary for business growth and future investments to take your business to the next level.
