Smart Financial Decisions For Your Startup

As the business owner of a startup, you have dozens of important decisions to make. Finances can be a challenge for a startup. Your business may operate on a small amount of available capital. You need to carefully monitor your finances so you have enough cash to operate your business. Use these tips to make smart decisions about your finances:

Create a cash flow plan

Start by creating a detailed plan for using your available cash. At the beginning of each month, forecast your total sales. Once you estimate your sales, you can compute the amount of cash your need to deliver your product or service.

Say, for example, that you provide online marketing services to clients. You estimate the number of projects you need to complete for the month. If you know the number of projects, you can forecast the amount of time and employee hours it will take to deliver your service to the client. You can plan your cash flow to pay for those expenses.

Factoring

Some startups may not have enough available cash to deliver a product or service. One method of financing you can access is factoring.

Universal Funding explains that a company can use their purchase orders to secure a loan. A purchase order is an agreement between your business and the customer. The customer is promising to pay you after the products are delivered.

A factor (lender) can lend you money based on the dollar amount of your purchase orders. This arrangement gives you the available funds to produce a product for your customer.

Collection policy

Every startup should have a formal policy for handling collections. If a customer invoice has not been paid within 30 days, for example, you need a formal policy to follow up on the payment. You may email each client once an invoice is 30 days old. If the customer does not pay within 45 days, you make a phone call.

This formal process ensures that you follow up on every unpaid invoice. By having a disciplined approach to your collections process, you won’t let unpaid invoices fall through the cracks. You’ll have an easier time financing your business using this process.

Discounts

Another strategy for managing your finances is to offer a discount for timely payments. You might, for example, offer a 5% discount on every invoice that is paid within 10 days. This policy allows you to collect 95% of the invoice amount quickly.

If customers typically pay you in 60 days, offering a 5% discount is a huge boost to your cash flow. This approach helps you collect cash sooner, which improves your ability to operate your business without the need to borrow money.

Customer deposits

Since you incur costs to make a product or deliver a service, consider asking customers to make a deposit when they place an order. The deposit can help you cover the cost of providing your product.

Assume, for example, that you ask for a 10% deposit for every order during the month. That 10% amount can make a big difference in your available cash balance. Many customers are used to paying deposits for goods and services. Your request may not seem unusual to them.

Managing cash flow for your startup can be challenging. Use these tips to manage your cash flow and to increase the amount of cash you collect each month. These strategies will make it easier for you to operate your business.