How Startups Can Stay on Top of Their Cash Flow

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:

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.

The cost to hire key team members such as an accountant can be
colossal for a startup. Luckily, there are plenty of software packages on the
market that can often do the job for you or help you cut back on your
payroll.

Xero, for instance, is an accounting software that 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.

Making sure 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.

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.

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.

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.

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.

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
need to borrow money.

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.