The Importance of Cash Flow for Your Start Up
Startups commonly need a steady supply of cash flow to keep their business running. With enough money coming in, they can pay their bills, provide salaries to their employees, purchase products and more. While some of these expenses can be paid with a loan, if the company is using all their extra cash to pay off the debt and interests, they usually won?t be able to properly expand the business. There are several things that new businesses can do to increase their cash flow.
Realistic Planning
Before the business can even begin, the owners generally need to plan what possible expenses the organization may have. Doing research and talking with individuals in the same industry may be helpful. Additionally, it may also be important to plan for unexpected expenses. The company should not assume that everything will go smoothly with the business?s operation. Once the organization has a good idea of what their expenses will be, they can plan how much revenue they may need.
Revenue Is not Cash Flow
While any sales made are typically considered to be revenue and, therefore, can make the company look good on paper, it?s often common and acceptable for companies to give buyers a month or even more to pay for the product or service provided. Unfortunately, the business may need that money a lot sooner to pay expenses. Therefore, it can be crucial for startups to get their salespeople to try to minimize transactions that are paid on account. While completely disallowing such sales is generally not common business practice, the company may give discounts to those who pay right away.
For those customers who cannot pay immediately, it may be necessary to check their credit score. That way, the business can know whether they will pay by the deadline, so it can properly plan their expenses.
Cash Goes Both Ways
While businesses usually want to quickly increase the amount of cash going into the company, they typically want to reduce the flow of cash leaving the company. While getting rid of expenses altogether may not be reasonable, there can be ways to manage this. One primary step is to immediately pay those vendors that give discounts for paying right away. This may save the business money. However, if the vendor does not provide a discount, it may be best to delay the payments until the last moment. This can give the company some extra time to get paid by their own clients.
Cash can be crucial for the survival of startups. By following these suggestions, the startup may not only survive but thrive as well.
