The Ultimate Guide to Help You Manage your Startup Cash Flow. Learn effective startegy to manage cash flow for your startup
Cash is your startup's lifeline. The more time you can give it, the better. However, a lot of startups appear to manage their capital flow haphazardly. The outcome can be chaotic, with startups having dangerously low cash reserves and founders being forced to forgo pay, use their assets, or take out personal credit cards.
Here are some suggestions for better cash management in your startup.
A good way to start is by keeping your books of accounts organized to get a sense of whether your company is hitting its financial plan. A critical part of that is to keep the books current — reconcile them every day if you can.
Regardless, good record-keeping isn’t just about keeping chaos at bay. Messy books will not reflect well on your business savvy when potential investors begin to do due diligence on your startup.
Credit cards have become a popular and powerful tool in managing startup cash flow. But before you apply for any old card, consider your own commercial bank and their credit card options. Once they get to know you, they are often more willing to help you now and down the line if, for instance, you are running low on cash.
As a founder, it’s natural to put the company’s first credit card in your name, but make sure you understand the fine print. Some cards require personal guarantees from the holder. As a result, you may be liable for unpaid charges, rack up late fees and find that your credit rating takes a hit. You’ll be better off with a card that doesn’t require personal guarantees so you won’t face such risks.
Decide who gets what access and privileges after you've established a card and bank account. Create a "spend culture" that outlines guidelines for using cards and checks, along with sanctions for breaking those guidelines. A principal administrator, multiple authorization requirements, and separate accounts for payables and receivables are a few strategies that can be used to prevent fraud.
Demand receipts from suppliers and staff. To make it simple to use your credit card points where you need them most, think about routing them into one account. Make sure your cards include purchase protection, fraud protection, and travel benefits.
Accounting and tax preparation will become a hassle without such discipline. Finding out who spent what and whether a purchase qualified as a business expense or not is something you don't want to have to do.
Free trials are a common tactic used by companies to attract new clients. This won't result in money in the bank.
Of course, credit cards are excellent cash management tools that let you defer payments. If you pay your debt in full, you can pay an expense from June—like your AWS bill—in July or even August without incurring any additional fees. Similar gains can be obtained by arranging payment terms with your vendors, such as 10% cash up front followed by net-30 or even net-60 on the remaining balance. Asana, Dropbox, G Suite, and SurveyMonkey are just a few examples of the numerous "freemium" applications that can assist you in running your business.
Early invoices are the antithesis of late payments, so bill your clients as soon as you can. Deals are a wonderful approach to increase cash flow for a subscription business.
The greatest approach for founders to prevent running out of money is to convince users to pay for their product. Yet many startup use free trials to try to attract new clients. This won't result in money in the bank. Additionally, since anyone may sample something for free, you won't be able to tell if your product will be successful in the market.
A better strategy is to charge customers a little price to participate in a trial and give them a significant discount if they decide to make a purchase at the conclusion of the trial. It's usually a sign that you have a quality product if they're willing to pay for it. It may also serve as a crucial source of affirmation for prospective investors.
Another crucial advantage of having your books organized is that it will provide a clear picture of how much runway you have. With that information, you can overlay milestones like the time needed to create a minimal viable product, the time required for client pilot tests, and the time required for fundraising to obtain an idea of where you are.
The truth of startup life is that many founding teams lack the resources or time necessary to manage daily cash flow. Fortunately, there are several options available to you. They range from outsourced CFOs to bookkeepers.
Don't make the mistake of considering cash flow as an after thought while you race to get your startup off the ground. It could seem like a distraction to invest time in creating clear books, solid banking relationships, practical checks and balances, and prudent spending practices. But starting now with discipline will increase your chances of success and increase your runway.