Running out of money is the primary reasons that businesses fold after a launch. The problem of cash flow management can be solved by converting the sales into the cash, increase the spread between the inflows and outflows to build a cash cushion that are essential to the long-term, sustained growth of every company, large or small. The movement of funds in and out of your business can avoid business failure and about how they spend their startup capital.
1) Measuring cash flow:
Start the cash flow for startup business by adding cash on hand at the beginning of the period with other cash to be received from various sources. Make accurate cash flow projections with detailed knowledge of amounts and dates of upcoming cash outlays. Also, you need to have a line item for every significant outlay, including rent, inventory, salaries and wage, sales and other taxes withheld or payable. The accurate cash flow for startup business can alert the trouble that strikes yearly, weekly or next quarter.
The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Here are specific techniques for doing this:
- Offer discounts to customers who pay their bills rapidly.
- Ask customers to make deposit payments at the time orders are taken.
- Require credit check
- Get rid of old, outdated inventory for whatever you can get.
- Issue invoices promptly and follows up immediately if payments are slow in coming.
- Track accounts receivable to identify the slow paying customers
3) Managing Payables
Watch expenses carefully when managing cash flow for startup business. Don’t be lulled into complacency by simply expanding sales. The top-line sales growth can conceal a lot of problems-sometimes too well. Don’t be lulled into complacency by simply expanding sales.
- Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days.
- Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.
- Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you’ll need their trust and understanding.
- Carefully consider vendors’ offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a change to reduce overall costs.
- Don’t always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow for startup business more than a bargain-basement price.
4) Surviving Shortfalls
Sooner or later, you will foresee or find yourself in a situation where you lack the cash to pay your bills. This doesn’t mean you’re a failure as a businessperson- even the normal everyday business practices can help you manage the shortfall.
5) Take control of Inventory Management
Finding the right balance is called inventory optimization, here are the tips to improve inventory turnover while minimizing impacts on sales.
- Coordinate various types of inventory ( raw materials, work-in-progress, finished goods)
- Try to optimize the inventory levels to meet your demand cycle. The demand cycle not only affect the volume of orders but also their volatility
- Different expectations in terms of service levels and lead times
- Deliver strong supplier relationships
- Compress order-to-delivery cycles and optimize buffer stock levels.
- Speed up inventory turnover
The effect of cash flow for startup business is real and immediate; follow the above steps to achieve positive cash flow for SME’s. Handle the business metrics like a pro with proper online invoice and billing solutions like Invoicera. Some of the invoicing features include automatic payment reminders, invoice scheduling, control, online payments, inventory optimization and much more.