Starting and running a business can be a challenging task, but one of the most important aspects of any business is managing its cash. Yet this is one of the areas in which small businesses struggle the most.
The Small Business Administration estimates that cash flow problems are the primary reason small businesses fail. Managing cash flow is a critical task for any startup, and it can be the difference between success and failure. In this article, we will discuss tips and strategies startups can take to effectively manage their cash flow.
Create a Cash Flow Forecast
A cash flow forecast is a projection of how much money will come in and go out of your business over a certain period of time. By creating a cash flow forecast, you can anticipate cash flow shortages and surpluses and plan accordingly. This will allow you to take proactive measures such as seeking additional financing or cutting costs before a shortage occurs.
Here are some steps that can help you get your cash flow forecast together:
- Collect all the financial data your business has, including income statements, balance sheets, and cash flow statements.
- Identify the key drivers of cash flow, including sales, expenses, and investments.
- Use the data and key drivers you just collected to create projected income statements, balance sheets, and cash flow statements for the forecast period.
- Review the forecast and use it to identify cash flow shortages and surpluses. This can be used to create a plan of action.
Keep Track of All Expenses
Keeping track of all expenses will help you understand where your money is going and where you can cut costs. This could be as simple as using a spreadsheet to record all income and expenses, or you could take it a step further and use accounting software.
Prioritize expenses that are strictly necessary for the survival of your business, such as rent, salaries, and inventory. Consider cutting or delaying expenses that are less important.
Check Your Accounts Receivable
“Keeping an eye on your accounts receivable is an important aspect of managing cash flow in a startup,” explains Daniel Tannenbaum, the founder of digital marketing agency, Tudor Lodge Digital.
“Accounts receivable are the amounts that customers owe your business for goods or services that have been delivered but not yet paid for.”
“By monitoring your accounts receivable, you can ensure that you are getting paid on time by your customers, which is essential for maintaining cash flow. You can even set up an accounts receivable software which will automate invoice generation and reminder, and offer insights about your customers payment behavior.”
“If you notice consistent problems with payment, there is nothing wrong with sending a client a reminder. However, if this problem continues and they are consistently late with payments, be prepared to take action. You can consider contacting a collections agency or taking legal action.”
Seek Professional Advice
If you’re struggling to manage your cash flow, don’t hesitate to seek professional advice from an accountant or financial advisor – find out more here. They will be able to provide you with tailored advice and guidance to help you manage your cash flow more effectively.