Tricks on Managing Start-up Cash Flow

Cash flow is the life blood of any company yet it can be a real pain for most start-ups.

Many times good businesses with fabulous ideas and good products have filed to celebrate their first or second birthdays because the business can’t financially sustain its self in business.

After working with a number of start-ups I found out that the problem is both perception and neglect and not necessarily ignorance. Start-up owners who understand the risks and act early tend to be much more successful than most.

 The Problem

Most if not all start-up owners tend to believe that to succeed them only need to produce an excellent product then go out there and promote it till there is substantial market acceptance to bring in profits. End result is a widely believed perception that cash is important but anytime spent on managing it is time lost from generating sales revenue. This formula is not complete because at an early stage businesses are so fragile that every penny made counts and thus should be well taken care of and applied to run the business to stability. The truth is you should take care of bird in the hand as you hunt for more.

Every successful entrepreneur will tell you they started with a lean and very helpful team and that’s so true, most will forget to tell you that their teams were actually lean and SMART and some people on that team had tirelessly ensured that issued invoices were followed up for payment and received cash was wisely applied to ensure continuity. As you assemble a team that can produce an exceptional product or service and promote it perfectly, it will only be smart if team included someone or people and system or business model that can ensure cash generated or borrowed works to the best interests of the business.

Growth is mostly driven by increasing new clients, amounts billed per client transaction and frequency of purchases through repeated sales with the assumption that the bottom line is well catered for. Managing the bottom line is very important and thus processes and energy needs to be put in place to ensure cash is actually being collected from revenue generated in being used wisely.

The solution

If you find yourself in a tight situation or have fear you might get in a cash fix take some time to reflect on the operations model you are currently using and talk to a few experts or a trusted mentors on how best you can reorganize your business in the following areas;

Payment terms with clients and suppliers. Ensure your clients are paying you some percentage upfront were possible and agree on favorable but flexible timelines and terms of paying off the balance. This will ensure you always have some cash to work with while at the same time keeping you in the know of when additional cash will be coming in. negotiate payment terms with your suppliers so you can pay them in a manner that is more realistic and flexible for your business and above all honor this agreements to keep the trust – you need it.

Track the cash in and cash out processes in your business. Technology has made this process so simple that you basically don’t need technical expertise in either IT or Finance to use the available accounting packages such Quickbooks, Pastel, Tally and spread sheets like Excel. If mastered and applied in operations properly these packages can make book keeping fast, accurate and cheaper giving you mare time to concentrate on promoting your products or services.

Monitor expenditures so as to see areas you can cut spending to free more cash for growth purpose. Things like buying in bulk to benefit from discounts for office supplies frequently used and negotiating batter arrangements with clients you also buy from should enter you cash flow management tricks.

It’s important to have more than one bank account and one dedicated as a reserves bank account and another projects account for businesses providing contractual works or services like constructions or even website or catering services. The trick here is that on costing a job or service you have been contacted to provide and receiving some down payments were applicable set aside in this account the required funds to perform to completion your job so that other office operations and promotional expenditures you are incurring do not encroach this account and if it ever does its wit your express knowledge and you have solutions on correcting that.

Above all your goal as a start up or any other SME is survival and growth to a high performing and stable business and cash flow management is key. Big companies with easy access to capital and a listening hear from banks still know this is key and have mastered the art so well that to them this comes naturally. 

If you liked this article do not forget make our friendship official, like and friend Analyst Business solutions on Facebook.

By Andrew Ekwang. SME  Finance & Accounts trainer at Analyst Business Solutions