By Lovisa Alvin
It is not unusual for a startup to experience some cash flow issues initially. While this problem sometimes becomes unavoidable, it is not unsolvable. Following a few simple steps right from the beginning can help you avert this issue and maintain a smooth cash flow. Since this is the primary requirement for any successful business, it is best not to delay the process and take measures to keep the cash flow positive.
1. Appropriate Invoicing
One of the best ways to ensure that a positive cash flow is maintained is by following proper invoicing processes. It is critical to know when to invoice. Ideally, if you delay invoicing, your client can deny payment and rightfully so. Also, since these projects are bound by contract, the invoicing details are also mentioned there. Often it has also been noticed that an acceptance letter can help you get an acknowledgment of the client’s approval and satisfaction with your products.
2. Keep Repeating Your Business
If you are running a startup in a volume-driven business setup, you need to keep repeating your business in order to make and sustain the profits. For instance, in a retail line of business, you have to keep serving your client until the third or fourth time till you can make a substantial profit. Thus, you have to keep them interested in your work, in the service or product you are selling and get them to come back to you. This helps maintain a positive cash flow.
3. Maintain Your Budget And Expenses
This aspect is especially true for small startup businesses where the budget is of utmost importance. It is imperative to know how much you are spending and on what things. If there are certain subscriptions or offers that you previously signed up for, but are not using them, it is best to get rid of these expenses. Cutting out even one monthly expense saves you a lot of money and keeps the cash flow running.
4. Timely Payment Policies
New startups are often the victim of delayed payments. This hurts your business more than you would know. If you want to maintain good cash-flow management within the company, you need to fix your payment policies. Your clients should not be making payments before time or after time. This leads to irregularities in payments and record and thus the cash becomes difficult to manage. Instead, payments should be made regularly and purchases on credit should be discouraged.
5. Getting Rid Of Unnecessary Equipment
It is true that a new startup company or setup calls for a lot of experiments and initial expenditures. This also leads to purchasing a lot of machinery and equipment first up. However, if there is something that you do not require and can do without, or is left unused for a long time, you could sell it off. This reduces a bit of the overhead costs, equipment maintenance cost and also brings in some money.
6. Term Loans
So what if after having tried everything, you are still unable to maintain a positive cash flow within the company? What do you do? This is when you can explore the option of a term loan for working capital. This kind of a loan gives you a small capital that allows you to meet the immediate requirements within the business operations. This is more like receiving some cash in advance. This could cover aspects like buying resources for the inventory or even changing base to a new location. The interest rates are very manageable and thus this helps you explore more opportunities.
Dealing with cash problems might be tough in a startup business. A term loan can be the best idea to solve it. There are some other ways to maintaining your cash balance as well.
7. Pricing Is Important
There is one rather simple strategy used in business in order to do well. The product or service you are selling should be priced in such that way that your cost is covered and it also generates a small profit. This might seem very simple and obvious at first, but there are a lot of companies who stumble here. The primary reason for this is competition. In order to cater to competing companies, sometimes the startups tend to keep their prices rather low. Thus, they incur a loss in the process. This can be really detrimental to your business and cash flow and the pricing should be corrected accordingly.
8. Maintaining A Reserve Fund
Building a reserve of funds will always prove to be useful in the long run. This ensures that if you face any financial difficulty in the future, your cash flow will not go in the negative direction since there is already some buffer amount stocked up for these operations. This can be done by separating out a small portion of the total profit and maintain this until a substantial amount has been saved up.
Dealing with cash problems might be tough in a startup business. We hope that this article would have given you a fair idea as to how you can maintain a steady cash flow for your startup.
What are your views on this? How do you take care of cash requirements in your startup? Do let us know in the comments.
Lovisa Alvin, a freelance writer since 2006. I attended university of California and graduated with masters in mass communication. I loves watching TV shows, movies or anything that leads to entertainment. Always interested to write tips about Business, Finance & Technology.”