New startups need to understand that the number one reason businesses close their doors is that they run out of money within a short time after launch. This is a well-known fact, but startups can avoid becoming another failed business by being smart about how much capital they invest. This is crucial. Managing cash flow effectively in a business is like paddling upstream without a boat. You won’t make it to the destination. Even if it does, you’ll feel exhausted and won’t be able to continue.
Instead, you should take steps to make your business more profitable. These 10 tips will help you manage your startup’s money.
1. Know when you’ll break even.
Although it won’t directly impact your cash flow or cash flow, knowing the point at which your cash will break even is a goal.
You’ll be more focused on your goal and the milestones that you must reach to achieve break-even, and you will make better decisions about how to spend your startup capital.
2. Keep your eye on cash-flow management.
Profit should not be your only focus. This may seem contradictory to my first point. However, it is not. To set benchmarks, you need to look at profit and break-even points. However, cash flow and spending must be maintained. This doesn’t mean you can stop focusing on profitability.
Derek Flanzraich, of Greatist, says “Every month doesn’t suffice.” “Nearly every other week, I check both my personal as well as business finances.”
3. Always maintain a cash reserve.
Startups should be prepared for shortfalls. Even with the best planning, they happen to everyone. Your survival will likely depend on how you deal with those unexpected situations. Cash reserves can help you reduce stress, distract from distractions and allow you to focus on your business growth.
4. Manage funds better.
You shouldn’t manage the money for your company unless you have to, which is very rare. This includes handling your accounting and tracking it. This task can be handled by an accountant or CFO. Designate someone trusted to monitor cash flow if you are unable to hire additional help.
A service or software platform InDinero.com can make this process easier. This software platform provides accounting software that makes cash management simpler. This service provides you with access to tax specialists, accountants, and CPAs who will work tirelessly to grow your business. Access to tax specialists is crucial to your cash flow. They’ll ensure you meet the deadlines for filing your tax returns to avoid interest and penalties.
5. Collect receivables immediately.
Avoid making invoices more than 15 days late and make sure to pay any due invoices immediately. As soon as you are able, let others handle the responsibility of monitoring receivables.
6. Offer discounts to collect payments earlier.
You can offer discounts to customers who pay earlier than normal net terms if you don’t want them to wait. Employees who are responsible for collections should be given guidelines that outline their eligibility for discounts. Then enforce these standards.
7. Extend payables where you can.
You want to make payments as soon as possible. However, you should also work with vendors and suppliers to negotiate the best possible deal. If possible, extend payables to net 60.
8. Spend only on essentials.
Your forecasting model should include a clear view of all the expenses coming down the pipe. You want to reduce spending and eliminate unnecessary costs until your business is profitable.
9. Be smart about hiring.
This is a common area where I see advice like “Don’t hire until absolutely necessary.” However, I prefer smart hiring. A highly skilled worker will be able to handle the work of several mediocre workers if you are able to recruit top talent.
While you may spend more on benefits and salary to attract top talent, it is likely to be lower than what you would spend on multiple employees who make more mistakes.
You may also find that they quit on you and force you to start again. According to the University of California-Berkeley’s Institute for Research on Labor and Employment, it costs an average of $4,000 to hire an employee. If you have to hire someone, make sure you are careful about who you choose to recruit.
10. Make the best use of technology.
To secure cloud storage, always back up files and cash flow spreadsheets. This will not only keep your data safe from file corruption and data loss/theft but will also make access easier from any location you have an Internet connection.