Manage Cash flow of startups is an important and tough of the startup. For startups that have limited resources and capital, it is paramount that they have a strict fiscal policy zone which is diligent and whereby money that comes in and goes out is monitored carefully.
Strong startup cash flow manage develops a regularisation of your cash accounts, gives insights into the financial situation and gives a possibility of identification of carefully considered solutions that help a company to improve its cash position.
How Cash Flow Statements Can Be Used by Startups?
A cash flow statement is an important financial management tool for startups which tracks how much cash is coming into and flowing out of your business over a set period of time. Analysing your cash flow statement helps identify trends and seasons in your cash flow, letting you predict future highs and lows.
This empowers smart financial decisions. For example, if you see cash dipping next month, you can adjust spending accordingly. Startups can use cash flow statements to monitor funding and burn rate.
Watching these key indicators helps you understand how long your current funding will last before you need to seek more investment. Overall, regularly reviewing startup cash flow management helps startups gain control over their financial situation amidst the uncertainty of launching a new business. The visibility and insights provided by cash flow statements enable startups to make strategic money decisions to support growth.
Essential Startup Cash Flow Management Tips
Here are the top Startup cash flow manage tips:
Create a Cash Flow Forecast
A cash flow projection for startups is the anticipation cash inflows and outflows over a set period. This forecast becomes your cash flow management roadmap, so aim to make it as accurate as possible.
Begin with your sales forecast, accounting for seasonal fluctuations and economic conditions. Be conservative in your revenue projections to avoid inflating your available cash.
Next, list your fixed and variable expenses, including payroll, rent, inventory, supplies, taxes, loan payments and other recurring costs. Build in a buffer for unexpected expenses.
Update your cash flow forecast monthly as you get real data. Change your projections when needed to keep your forecast in line with reality. Reviewing regular cash flow forecasts helps you spot trends and approaching highs and lows in your available cash.
Optimise Invoicing Cycles
Slow-paying customers can create a cash flow crunch. Set up structured invoicing cycles to get paid faster.
First, understand your customers’ payment policies. When do they pay invoices – every 30 days, 60 days, etc? Then, issue invoices as soon as work is completed to start the clock on their payment timeline.
Shorten payment terms whenever possible for better startup cash flow management. For instance, ask customers to pay within 15 or 30 days rather than 60 or 90 days. Offer a small discount for early payment if needed. Just be sure the discount doesn’t eat up your profit margin.
Automate invoicing to eliminate delays. As soon as work is done, the invoice can go out. This prevents invoices from sitting on your desk waiting for attention.
Take Advantage of Credit Card Float
Credit card float refers to the short-term interest-free loan you get between the time of a credit card purchase and your next statement due date. During this float period which is 20 to 30 days – you have use of the money you would otherwise immediately pay out of your bank account.
Maximise float by paying vendors and suppliers with a credit card instead of checks or wire payments. Just be sure to pay your monthly balance in full.
Get Paid Faster
Another way of startup cash flow management is to get paid faster. There are several ways to accelerate when you get paid:
- Offer customers discounts for paying invoices early, such as within 10 days
- Use a collections agency to pursue past due accounts
- Accept credit card payments so funds are deposited quickly
- Use PayPal, or another instant payment app
- Sign up for a merchant cash advance program where you receive a lump sum in exchange for a percentage of future credit card sales
The key is turning receivables into cash you can use as quickly as possible. Every day you wait is money sitting idle rather than working for your business.
Optimise Accounts Payable
Just as you want to get paid faster, you also want to delay outgoing payments. Stretching accounts payable improves short-term cash flows.
Pay bills at the latest due date, unless you get a worthwhile discount for early payment. Negotiate longer payment terms with vendors and suppliers when possible.
Set up payment plans with tax agencies to spread payments over time rather than one lump sum. Payroll taxes and sales taxes can often be paid quarterly.
Don’t stock up on excessive inventory. The longer items sit on your shelves, the longer you are fronting the cash. Order more frequent deliveries of smaller batches to reduce how much money is tied up in inventory.
Manage Payroll Effectively
Payroll often represents a startup’s largest recurring expense. Look for ways to control payroll costs without negatively impacting your staff which will help in startup cash flow management eventually.
Set clear policies on overtime pay and approach it as an exception for unusual circumstances rather than routine expectation.
Offer unlimited vacation instead of set PTO amounts. This gives employees flexibility without accruing liabilities on your books.
Stagger when employees get raises rather than everyone at once. Annual raise cycles strain cash flow.
Offer equity like stock options as a financial incentive, especially for early hires. This conserves cash while still providing valuable compensation.
Keep Personal & Business Finances Separate
A common mistake entrepreneurs make is mingling personal and business finances, especially using business accounts to temporarily cover personal expenses. While convenient, this disturbs visibility into how much cash you truly have available.
Set up separate personal and business credit cards, bank accounts and accounting. Never use business funds to pay personal bills.
Ideally, pay yourself a regular salary or owner’s draw. Track this as a business expense like any other payroll.
By separating finances, you always know how much cash your business has on hand to cover upcoming expenses which is a great way for startup cash flow management.
Build an Emergency Fund
Many things can happen like the customers delay payment or any equipment breaks or other similar type emergencies crop up. That’s why every startup needs a cash buffer as a safety net.
Aim to have 3-6 months of operating expenses banked as an emergency fund. This protects you from missing payroll or defaulting on obligations in a crunch.
Start setting funds aside early. Contribute a fixed amount monthly until you build up your target balance. Store emergency funds in an easily accessible account and don’t tie up this money in investments.
Resist tapping emergency funds except in a true crisis. This money is insurance, not extra working capital.
Invest Idle Cash
Cash you expect to use within about 3-6 months should stay in a business checking or savings account. But longer-term idle funds can be invested to generate returns.
Consider certificates of deposit, money market accounts, low-risk mutual funds, municipal bonds and other conservative investments with better interest than a regular savings account.
Research options at your bank and investment brokerage. Weigh factors like risk, liquidity and expected return to select options aligned with your timeframe and risk appetite.
Start small until you get comfortable. Investing returns can provide valuable extra income to offset expenses.
Final Thoughts
Startup cash flow manage is all about striking the right balance between money coming in and money going out. Follow these tips to keep a steady handle on your startup’s cash position. With diligent forecasting, optimisation and expense control you can build a strong financial base for your budding business.
FAQs
What is a cash flow analysis for a startup?
Startup cash flow management helps a startup’s ability to generate cash.
Why is cash flow important for startups?
Cash flow management and cash flow management templates are important as most startups fail due to insufficient cash flow.
How do you analyse cash flows?
Examine statements to see if more cash is coming in or going out.
Can StartupFino help in startup cash flow management templates and cash flow projection for startup business?
Yes, StartupFino has tools to help startups manage cash flow management templates and cash flow projections for startups of every size and business structure.
