3 cash flow management tips for startups
Running out of cash - it's the number one thing you don't want to do if you head a startup. Yet, according to research firm CB Insights, 29 percent of startups fail because of poor cash flow management.
Here are some handy tips on making your business a success.
When you first start out, you won't have many customers, and you'll be forking out for all sorts of expenses involved in founding a business, such as office space and marketing materials. It's not surprising that cash flow becomes a problem early on for so many companies.
1. Work out your burn rate as early as possible
A burn rate is the amount of money your business needs to spend every month to keep going. You can then use this to work out how much you need to stay open even without receiving any revenue (which you might not get for a while depending on how long it takes to gain a customer base). For example, if your burn rate is $3,000 a month, and you have $15,000 in the bank, you can keep going for five months without any incoming revenue.
When you do start raising money, you'll want to calculate your net burn rate, which is your income set against your expenses. This will help you work out how long you can remain open before you have to start making a profit in order to survive.
2. Keep expenses down to a minimum
Only spend money on things that will immediately add to your revenue. The more unnecessary payments can wait until you achieve a profit. There is a lot of technology out there that can help to reduce your expenses. For example, consider signing up to Google Drive, which is much cheaper than purchasing individual licences to use Microsoft Office on each computer you own
This should also include hires. Taking on full-time employees means paying salaries as well as extra taxes and compliance-related expenses. It's a much better idea to hire independent contractors or freelancers when you're just beginning, where you won't have to pay so many of the associated expenses.
3. Change the way you receive payments
When you're first starting out, it can be a good idea to offer a discount in return for early payment. Some startups also ask for a deposit, particularly with large orders, to ensure they're keeping their incomes up. Getting into the habit of giving customers lots of notice for invoices due is also something you should try to do early on.
Even with the best laid cash flow plans, sometimes incomes can remain low when customers don't pay what's due. Debtor finance, however, lets you take out a loan against the value of your outstanding invoices. Contact the team at Classic Funding Group on 1300 780 895 to find out more.