By Pete Sanders

Cash flow tips for start-ups

Businesses

Congratulations, you’ve started your own business, the business is set up, the paperwork is done and you’re in business. You are now an entrepreneur! Now as they say, the hard work really begins.

Did you know an estimated 90% of small business failures are caused by poor cash flow? This reinforces that the movement of money in the early days of your business is critical to its success. So I’ve compiled my top eight tips to make managing your cash flow easier in the early days.

1. Have a budget and actively manage to it

Keeping a budget empowers you with the knowledge you need to make the most informed decision about your business. Staying on top of your budget means more than just monitoring it; actively managing it relies on your ability to take critical action based on the results of your current budget. If you’re not sure of what those decisions are, consider speaking to an accountant, bookkeeper or financial adviser.

2. Set up a cash flow forecast and make sure you know where the cash is

Setting up a cash flow forecast is one of the most proactive ways you can manage your money. This involves accounting for all money coming into your business, as well as all the money leaving your business. Don’t forget to consider irregular payments (maintenance/repairs) and delayed payments (credit card payments). This will give you a clear picture of how much to expect each week, month or year.

3. Understand your expenses

Know where your money is going and as you grow delay as much as you can around taking on additional costs.  Can you hold out one more month from employing a new staff member or an expensive capital purchase? Consider the arguments for and against leasing vs buying. They might have the same impact but the short-term benefits of lease will free up cash.

4. What would it take to increase sales by 10%

Are there tools (such as your accounting software) you can use to determine where you can cut costs? Or are there services you’re currently paying for that you aren’t utilising fully? Consider implementing staff incentive programs for top performers, or perform an assessment on your current product offering to determine if your point of difference is still relevant to your customers.

5. Network to find the best advice

We all have our own approach to making big decisions. Crucial to the process is researching beyond Google. Active research involves shopping around and talking to fellow businesses around the best deals on all products and services that your business consumes. Try to attend industry events, workshops or join an association and network with business owners similar to yourself. Being an association or network member could also entitle you to discounts, benefits and training. Find the one that works for you.

6. Can you get a discount if you pay bills early?

Some service providers offer a discount if customers who use credit pay early. If a service provider offers a reasonable percentage discount, determine your annual saving, does it equate to a significant amount? When considering taking advantage of a prompt payment discount ensure you have cash or a credit line available throughout the year. If not the discount may not seem so appealing next to an overdraft fee. Ultimately always investigate the full range of discounts and payment options available and incorporate the ones that work the best for you in your cash flow forecast.

7. Debtor days

If you have clients/customers who owe you money, review if they pay you on time, if not why not? What would it mean to your business if they paid on time? Studies show medium and small businesses are among the fastest to pay their debts, while companies with more than 500 employees generally take longer. On average this equates to 54 days outstanding, well beyond the normal trading terms of 30 days. Always ensure you have a diplomatic yet practical way of chasing up outstanding debts to not only to stay afloat but also to keep your clients after the debt has been paid.

8. Make every minute count

Find out what you can automate to save you time and ultimately money. A good example of this is automatically having your bank transactions delivered to your accounting software using a tool like Reckon BankData. It’s worth investigating any ways that you can improve efficiency to save money.

Do you have a small business? Leave your best cash flow tip in the comments.

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