These 10 tips on managing cash flow will bring you back down to earth - so your business can fly.
Whether one is working for a startup, or he is startup himself, most of the businesses fail because of lack of cash. It has been seen numerous times that the startups try to distend their businesses. And since they do not track their cash flows, they realize one day that their long-term runway has reduced to a limited now. If all the startups start keeping an eye on the movement of cash and their spendings, they can save their business from failure.
The one who takes the risk of running a business without the analysis of cash flow might land in the raises of trouble. If you are doing so, you are actually shooting yourself in the foot and wasting all that you have done to maintain your other great works in management, finance, HR, etc.
Here we have described 10 important tips to keep your business on the path of growth.
#1. Control your spending’s
All businesses are meant for profit making and earn the name of a successful economic entity. But running does not always work, sometimes you have to walk or even crawl. At the time of setting up a business, if you are working on raising up the funds, you need to first have a check at your cash flow and spendings.
You can maintain your cash flow by creating a spreadsheet if you want. But the better option is to look after a cash management or accounting software, it will ease your work and will remove your accounting stress. You can opt for any good software which gives you automation, security from cyber threat and also provide protection from any human error.
#2. Hard Time Reserves Are Always a Good Idea
No one can predict a business future. The nature of a business is unpredictable and we remain like this always. A backup plan is the most recommended idea for such circumstances. For instance, a solid backup reserve of cash will protect you from any unforeseen circumstances. Emergency pivoting will make your times less hectic and will support you anytime. If you have reserved, you will always remain stress- free and focused on the growth of your business.
#3. Get Help for Managing Money
So, this is the problem arising with almost all the startups that are nor performing efficiently. It is seen most of the times that the founder is managing the accounts of the company, and it is eating up most of his time. Most of this type of people think that they are very efficient than they actually are. Honestly, if you are spending 80% of your precious time in managing money, you have only 20% of your time left for the growth of your business. This is not at all a good deal.
The best thing is to hire a CFO or an accounting company for this purpose. It does not matter how much effect you are, if you are managing your accounts by self, you are just wasting a big portion of hour precious time which you would have spent on the growth of your business.
One can also control the cash by introducing technology from account reconciliation to cross-currency purchase resistance and supply management. Having any of this essential solution will save your precious time. While on one hand, you will be focusing on your growth, on the other hand, you will be analyzing your money management too.
#4. Identify your spend priorities well
You should be able to identify your spends well. Knowing what is important vs. what is nice to have can create a big difference between success and failure. Opting for luxuries like tabs and free yoga classes for the employees and a dashing premises will suit a business till the time they are profitable.
Minimizing all these extra spends on the luxuries and premises and will ensure your money growth and not drawing down.
#5. Get all your owed money as soon as possible
It is possible to get trapped by letting the customer’s move away paying late in the beginning. As a startup company, one might be very happy to have customers and so eager to please that we ended up grubstaking them for months. It is not at all a good thing until and unless you are a bank.
Maintain your invoices regularly and shift to an automated system as soon as possible. Again Tip 3 will help you here, hire someone to have a regular eye on your accounts.
#6. Pricing Discounts
Another option is to offer pricing discounts on early payments. Yes, you read it right! This system can affect your profit margins but it will surely improve your cash flow management. This can be done by offering cash discounts or incentives to the customers on early payments than what your regular payment cycle asks for. Even you also can ask for discounts on early payments from your suppliers. But also make yourself sure that you do not suffer a cash flow shortfall.
#7. Don’t try to get more than what you can manage
Cash flow management is all about efficiency and good timing. No startup can resist themselves from having a new big fat client. It is a revolutionary talent to say yes on the spot to a big client and skip thinking of what to do later but it can push you into a serious trouble.
If you are going to deal with a project that is costing very high, turn down and postpone it for later. This will let you a good time for research and think once again. Try to offer discounts for delaying the projects or extending the deadline of the project.
#8. Cash Flow vs. Profits
You cannot grip your cash flow just by looking at your profit and loss (P&L). There are some other factors too that affect your cash flow- accounts receivable, payable, inventory, capital expenditure, Debt services, etc.
Today’s dynamic businessmen have found a secret. Knowing what you have earned and knowing what the status of your cash is, both are the different sides of a coin. As defined by the rules of accounting, profit is simply the expenses subtracted from revenue. Invoicing a customer for the goods or services you sold to them generates revenue. While the actual collection of money on that invoice is what generates cash.
Profits are generated by having a positive cash flow. You require enough cash to pay your suppliers and employees in order to keep the business operations running. It is only the sale of your goods or services which helps you in generating profits. You need to structure your startup well if you want to have a positive cash flow and if you want your company to grow.
#9. Hire Smart
Now, recruitment and hiring are always proved as a fine line for a startup. On one hand you don’t want to let you go crazy in the starting but on the other hand, you also don’t want to become that much steady that allow you to make things wrong. Hiring highly skilled and experienced employees will save your money and time whereas hiring the lower and mediocre ones will cost you.
A study by the University of California-Berkeley Institute for Research on Labor and Employment tells that it costs an average 3300€ to hire an employee. Don’t waste that much money on the wrong person.
#10. Get Tech In
Preparing your cash flow using spreadsheets can help in the short term but it is not at all a safe way to secure your financial data. You need to secure your financial data first from any theft or loss. Particularly at this time when the cybercrime is rising at the peak.
Technology will not only give access to your data anywhere, anytime, it will also give you the surety of protection from any crime of theft. This becomes more important when you are going to start a second/third office in a different country and having to manage multi-currency payment system. We have seen this a number of time again – different ways of dealing with cash flow in different places, without having a unified layer of intelligence or protection on top for safety.
This article has been contributed by Sarubpreet Kaur who is a content writer with LegalRaasta. Legal Raasta is an online portal that assists companies and startups with company registration, GST Return, FSSAI Food License, Trademark registration.