How to stay on top of your cash flow as a startup
In this guest article from Tudor Lodge Consultants, they cover how to stay on top of cash flow as a startup.
Cash flow can be a massive challenge for startups and small businesses. Without a proper handle on how to control your cash flow, startups can be crippled and businesses can fail. We speak to online fintech startup, Dollar Hand, to get some practical tips on how your startup can stay on top of its cash flow.
Create good relationships with suppliers
Cultivating and maintaining a good relationship with suppliers means allowing room for negotiation in the future. Having a positive relationship with suppliers can prove useful when making bulk orders. It may be possible for you to agree on a payment plan that keeps cash in your startup’s pocket for longer.
Looking to the future is a vital part of staying on top of cash flow. Forecast from your sales means predicting the sales cycle to help you prepare for the peaks and troughs of cash flow. Forecasting is incredibly important for startups and young businesses and even more so today as businesses face an uncertain financial landscape.
To prevent cash flow problems, startups need to have a realistic (bordering on cautious) approach when it comes to forecasting sales. Being optimistic can cause cash flow issues for the future.
Cut unnecessary expenses
As the owner of a start-up you need to have an eagle eye for expenses. One of the best ways to control cash flow is to know exactly how your money is being spent and ensure that you are not overspending without knowing why. Always make sure that you are getting the best value for the money you’re spending and cut out any unnecessary expenditure.
Handle your inventory
Inventory can be one of the biggest costs for a young business or startup. Unsold inventory can cause a massive financial strain on young companies. Ensure that you are monitoring stop carefully and only re-ordering what is absolutely essential. Focus spending on stock just moving quickly. You might also want to consider selling products that are not moving quickly at a lower price to help clear up space and minimize financial losses.
Cultivate good relationships with lenders
Being on positive terms with your lender means ensuring that you have frank and honest conversations about the reality of your financial situation. It is incredibly important that you are bookkeeping efficiently and fully understand the financial situation of your startup. This positive relationship may also mean that you are able to borrow more money at a better rate in the future.
Ensure you have enough liquidity
It is always tempting to spend what we have and invest in our businesses, but think wisely before you make any investments or large purchases. By avoiding syncing large amounts of funds into improvements or investments your business will have the liquid cash and needs to handle any unforeseen circumstances. Always make sure you have sufficient cash reserves to cover your company’s expenses for between 3 to 6 months, this way you won’t be caught out in an emergency.
Watch for warning signs
As a business owner, it’s important that you are always on the lookout for potential warning signs that your company is taking a negative turn. Keep a careful eye on your cash flow to watch for customers who take longer to pay, penalties for late payments, a decline in turnover or being unable to pay a supplier. All of these could be warning signs of poor cash flow.
Businesses must stay alert to the early morning signs so that they can quickly increase their capital and avoid being overrun by debt.
Be realistic about your business
Make sure you are regularly reviewing the financial situation of your business. When running a start-up it can be all consuming and it’s important to remember to take a step back and evaluate what’s happening. If cash flow problems are becoming a regular occurrence you need to look carefully into what factors are causing this. Is it the sales targets that are being met, or that you’re overspending in one area of your budget? If your current model isn’t working you need to carefully review your situation to find the best way forward.