Poor financial management is a mistake most startups face. All new enterprises should clearly understand that cash flow management is one of the main reasons for the collapse of the project shortly after its beginning. This scenario is confirmed by statistics but startups can avoid this undesirable fate simply by carefully and reasonably handling their money.
Trying to manage a business without careful cash flow management is like rowing upstream without oars. Instead, it’s best to make sure your business grows healthy in advance. Make sure you are moving in the right direction by following the nine tips outlined below.
1. Know Your Breakeven Point
Knowing your breakeven point will not necessarily affect cash flow management but it will give you a goal to achieve and a clear forecast of the point at which the next stage of the business will begin. If you focus on this point and the intermediate points that you need to achieve, you can much more wisely manage the capital and plan a budget over a long time.
2. Always Maintain Cash Reserves
Every startup is faced with a shortage of funds. This happens to everyone even with the best planning. Your survival will depend on how you survive this crisis. The money set aside “in reserve” in this case will soften the blow and help focus on business development.
3. Hire a Professional Manager
If there is no urgent need (which happens rarely), you should not independently manage the money of your business and track cash flows. Hire an accountant for these tasks. If you can not hire a new assistant, entrust the monitoring of cash flows to a trusted employee.
4. Tracking Cash Flow
Avoid overly focusing on profits. Although this may sound contradictory to the first paragraph it is not so. You predict profit and breakeven point in order to set key indicators but you still need to focus on costs and cash flow. This rule will not change just because you made your first profit.
5. Demand Immediate Repayment of Receivables
Try to issue all bills with the note “for immediate payment” or limit the repayment period to 15 days. If you can do this, then delegate to someone the task of watching over the return of debts and working with clients to get your money as quickly as possible.
6. Offer Discounts to Collect Payments Faster
If you do not want to wait for the required time to receive payment from the client, offer them a discount for early payment. If employees are dealing with fundraising, then make sure that you have recommendations confirming their reliability. Strictly adhere to selected standards in the future.
7. Spend Money Only When Necessary
Part of your forecasts should contain a clear vision of the necessary expenses that await you in the near future. In addition to the essentials, minimize and exclude minor expenses until you make a profit.
8. Hire Wisely
You can often hear advice to not hire an employee until you are sure of their need. This, of course, is good advice but clever hiring of employees is more appropriate. If you can attract top talents and qualified employees who can work for two or more average employees than that’s a good thing. You will probably spend a little more on salaries or bonuses to attract such an employee but it will be less than if you have several employees performing the same task but with a lot of mistakes.
9. Use Technologies
Always back up your cash flow files and tables to secure cloud storage. This will not only protect your data from loss or damage but also provide you with simple and easy access to your data from anywhere.