This Is How To Improve Cash Flow For Your Startup
Generating cash flow can be one of the most challenging aspects in running a startup, particularly in the early days. However, to be able to scale and grow effectively, having adequate cash flow is essential.
It takes a systematic approach to accounting for startups looking to free up some liquid assets to expand their business. Here are some of the ways cash flow can be improved.
Create an Invoicing Strategy
Startups are notorious for having poor invoicing strategies, which is a cruel irony as startups tend to need that extra cash flow the most. One of the simplest and most effective ways to improve cash flow in any organization is to implement a strong invoicing strategy, to encourage customers to pay faster. This strategy will focus on two key areas: getting invoices out promptly and making the payment process as simple as possible.
To make the invoice easier for the customer to pay, startups should incorporate various payment methods outlined on the invoice, along with a clear due date. Additionally, using an invoice template that clearly identifies what the charge is for can also help offset any invoice shock. For example, a carpenter might have an invoice template that doesn’t just summarize the hours worked, but also generates line items to show what work was completed.
By setting aside recurring time slots each week, a startup can ensure that invoices are being sent out promptly, lessening the time between invoicing and payment.
Designate an Accounts Receivable Person
Another aspect of invoicing is to designate someone to follow up with overdue accounts. Startups should consider having someone handle this task internally or outsourcing to a virtual assistant to follow up with overdue invoices if resources are limited. Clients who know they will be held accountable for their balance owing are far more likely to pay, improving cash flow.
Track and Cut Expenses
Little expenses tend to add up quickly. For example, in-person client meetings that result in meal and travel expenses can use up thousands of dollars of profit every year. By tracking and analyzing expenses, a startup can evaluate what items are necessary and what activities or expenditures could be cut. Client meetings over lunch may be replaced with conference calls, leaving travel expenses for emergencies or significant events. Not only will this reduce mileage and accommodations, but meals, snacks along the way, and so on.
It’s also important to look at in-office expenses and see how various aspects could be optimized or collated. Many startups are choosing to go paperless or working remotely without a formal office to reduce operating expenses by thousands of dollars each year, improving the cash flow as a result.
Take time to look ahead a week, a month, and a year down the road when considering cash required and potential income. It’s essential to be proactive and consider how the choices of today will impact the results of tomorrow. Doing so will allow startups to set aside a bit of money in savings to help offset future expenses that will require a significant investment.
For example, startups are often tempted by the prospect of a new, large-scale client. However, if the project will be expensive to deliver without promise of payment for months, the new client could end up putting the startup out of business. By looking ahead and planning accordingly, a startup can either say no to the client or create a payment structure that will improve the cash flow levels without breaking the business.
Use Business Reports
Business reports are often looked at as an archaic tool that modern organizations put on the backburner. However, by using essential business reports, such as an AR aging report, sales forecast, P&L, etc. startups will get a better picture of what’s going on in the organization and will be able to make strategic decisions to improve cash flow.
This also plays an indirect role in cash flow management: keeping the investors happy. By providing reports and proving that the business is being handled with care, investors will be more willing to continue contributing to the organization’s efforts.
By enacting smart business practices, startups will be able to improve their cash flow and avoid becoming a failed business statistic.