Quick tips to help your startup maintain healthy cash flow.
If your brilliant ideas and strategy are the brains of your start-up, and your entrepreneurial passion and vision are its heart, then cash flow is the blood running through your company’s veins. If that flow is too weak or stops entirely, or you fail to vigilantly monitor it, your early stage company will soon find itself in the start-up emergency room.
Effective cash flow management is critical to the success of every start-up. Many entrepreneurs are understandably focused on obtaining the capital needed to get them off the ground. But failing to account for how that capital is spent and how it will be replaced on a weekly, monthly, quarterly, or annual basis can be a fatal error.
Here are Three Essential Tips to Manage your Startup’s Cash Flow
- Feel the burn rate.
How many dollars are going out your door each month is your company’s gross burn rate. Knowing how much you’re spending on a monthly basis is arguably the most important aspect of effective cash-flow management. If your business isn’t yet turning a profit, you should also calculate your net burn rate, which is the amount of money you are losing each month when your expenses are subtracted from your incoming cash. Combined, these burn rates will tell you what you need in terms of revenue or additional capital infusion to pay for operating expenses before you run out of money.
- Be frugal. You no doubt have big dreams for your company, and realizing many of the biggest of those dreams requires spending significant amounts of money. Early on, especially if you have yet to turn a profit, you need to distinguish between spending on what you need as opposed to spending on what you want. If all goes according to plan, you’ll be able to afford those aspirational things soon enough.
- <h4>Get paid upfront and consistently. Knowing when to expect revenue is as important to cash flow management as knowing how much revenue to expect. If you can get customers to pay a significant deposit, arrange for ongoing payments to come through regularly scheduled EFTs, or even offer discounts for early payment, that will allow you to better coordinate your expenditures with incoming cash flow.
Cash-flow management isn’t brain surgery. The foregoing tips – know what you’re spending, don’t spend too much, and do everything you can to get paid – are pretty intuitive. But as with your own health, maintaining your company’s financial health requires attention, time, and effort.
If you have any questions or are seeking assistance with your start-up’s cash flow management and financial well-being, please contact us. We welcome the opportunity to assist you.