Have you ever found your startup was short on cash and you were struggling to meet your financial obligations? You have money coming in but it goes out the door just as quickly.
Cash shortages can be a sign of trouble within your startup. Cash is the lifeline of the business, and to be short on cash keeps you from meeting your financial obligations. If you can’t meet your financial obligations, your startup could be shutting its’ doors. Cash shortage is one reason why 82% of businesses fail.
To avoid joining the ranks of bankrupt startups, get smart about boosting your cash flow by implementing these 5 strategies.
1. Get Professional Support
To save money, lots of new business owners try to manage their books on their own, but this is a major mistake. Managing cash flow is too time consuming, complex, and critical to your company’s survival for you to fit it in with all of your other responsibilities. In fact, the very first team member you hire should be a professional bookkeeper/financial manager.
Effective cash-flow management is the foundation upon which all of your company’s financial and tax strategies are built, and it needs to be done properly from the very beginning. With this in mind, even if you’ve yet to earn any revenue, you should consider paying for a bookkeeper out of your own pocket.
Hiring a highly experienced bookkeeper with whom you can build a tight relationship might require an investment of time and money upfront, but the ultimate payoff in terms of your financial strategy and tax savings will more than make up for the initial effort and expense.
If you need support in finding the right bookkeeper, schedule a time with us for guidance. We can refer you to bookkeeping professionals in our area we trust most to ensure your company has the proper financial oversight from the start.
2. Implement Financial Systems
Above all, effective cash-flow management requires sound systems. If your company’s financial systems and processes aren’t set up the right way from the start, even a skilled bookkeeper isn’t going to magically fix them.
At Truest Law, we specialize in supporting startups to set up effective financial systems. We will help you put the proper systems in place to manage your cash flow and ensure your company has a rock-solid financial foundation that won’t suddenly collapse when the going gets rough.
3. Closely Monitor Accounts Receivable
Many startups experience negative cash flow simply because they don’t stay on top of accounts receivable. You must ensure that your customers pay you on time and in full. Accounts receivable that go unpaid for too long are more likely to get overlooked and go uncollected.
Your bookkeeper should keep track of all accounts receivable and include them in the monthly financial reports that he or she submits to you. Having these details included in your reports will not only keep you apprised of your company’s financial health, but it can also allow us to better assist you if and when you ever need support with collections.
4. Get Paid Upfront
One easy way to boost your cash flow and eliminate headaches associated with accounts receivable is to have your customers pay their bills upfront whenever possible. This is especially true if you have clients who are consistently late with payment.
If full payment upfront isn’t feasible, even requiring partial payment as a deposit will improve cash flow. To encourage quick payment, consider offering discounts for upfront or early payment. At the same time, have a firm policy in place that penalizes late payments, and make sure your sale agreements clearly spell this policy out—and you consistently enforce it with all late paying clients.
5. Maintain A Cash Reserve
Just about every startup experiences revenue shortfalls. And your company’s survival will likely depend on how you handle these lean times. To shield your company from the inevitable slow periods and unforeseen emergencies, try to maintain a cash reserve—even if it’s just access to a line of credit.
Having a reserve to fall back on will not only protect your company’s financial health, it can also save you from the stress and desperation that comes from unexpectedly running out of money. Nothing will kill your team’s morale—and your company’s growth—more than finding yourself unable to cover payroll.
Keep The Cash Flowing
All the vision and passion in the world won’t keep your startup afloat if you fail to properly manage your cash flow. That said, you don’t have to be a financial genius to keep your revenue flowing freely—you just need the proper systems and support. At Truest Law, we can support you with both.
We will assess your current financial systems and advise you about additional ways you can shore up any weak spots in your company’s foundation. Getting a handle on your cash flow will prevent your startup from running out of money, and it will also free up your time and energy to focus on the big-picture responsibilities needed to ensure your business not only survives but truly thrives. Contact us today to get started.