More than 60% of startups will not make it past three years. Out of those, 29% of them fail because they run out of cash. Many people are amazed that even a profitable startup can fail if they don’t have sufficient cash flow.
The reason for this? Healthy cash flow – not just profit – is what allows a startup to pay creditors. Although cash flow management may seem daunting, it is easy to do if you follow the right tips and strategies.
Always watch your cash flow closely
With more and more money flowing in from customers, business owners often struggle to allocate that money in a way that will keep cash flow healthy. If you don’t have someone who can closely monitor and manage your cashflow, hiring a bookkeeper is a great investment. A bookkeeper can help break down the complex numbers of your business’s cash flow into something less overwhelming. With a bookkeepers help, you will get a clear idea of how much cash you have available at any given time.
Discourage late payments
Offering ‘interest free’ payback periods is just one strategy many startups use to encourage customers to sign on. However, as a startup, you must be aware of the risks that come with delayed payments. Although delayed payments can positively impact your profit, they can negatively impact your cash flow.
Depending on your situation, you may want to consider not accepting late payments at all. If you want to keep the late payment option, you can reduce the payback period length, or discourage prolonged payment periods by charging interest. The more incentives you can provide to ensure that people pay promptly, the better.
Have a cash flow safety reserve
Saving is not just a good idea for individuals, it is also a great idea for businesses. Creating a “cash cushion” is how some of the world’s largest companies have survived during tough times – this strategy works just as well for any startup. Keep an average of three to six months of your average monthly expenses as cash at bank It might take you a bit of time to save any profits you make to the point where you hit this benchmark, but it is worth it, and can go a long way to ensuring the long-term survival of your business.
Find the right financing options
Financing can often be a solution to cash flow issues. If you are considering financing options, make sure that you sign up with a lender that offers suitable terms for your startup’s needs. Some lenders, for example, offer interest free payback periods. You may also want to consider the length of the term, interest rates, and the speed, ease and transparency of the application process. Do your due diligence.
Commit to getting better
Make sure you are always taking steps to improve your cash flow management. To take the right steps, make sure to keep on reading information from credible resources offering cash flow management tips. If you continue to follow best practices, you will put your startup in the best possible position to succeed.
Infographic Source: Moula