Do you know what the biggest threat to a startup is? Cashflow. You would think that as many entrepreneurs are motivated by financial rewards that their eyes would firmly be on the profit margins. This appears not to be the case.
Parliament business statistics from 2019, show that 380,580 new companies were registered in 2018. However, research shows that 20% will have already floundered within the first twelve months, and a further 40% will in the next three years. If the statistics look depressing, it must be remembered that the very nature of entrepreneurship is based on innovations and risks. Without the risks, there wouldn’t be the rewards.
So, if you have a startup, how can you keep a handle on your cashflow? What steps can you take to avoid the need for https://www.antonybatty.com/company-liquidation/? Let’s look:
Prioritize spend control
You must get to grips with the health of your business’s finances. You need to have processes and procedures in place so that you have complete visibility of transactions. It’s not enough to access your accounts once a month when you reconcile the bank accounts. You need to know in real-time your financial position.
There are many affordable accounting software solutions, and it worth investing in some. The benefits of spending control include:
- Full visibility
- Increase of data accuracy/ decreased risk of error
- Alerts of unconventional spending
- Increase of data to inform decisions
Stop bankrolling customers
In the early days of business, it’s natural to feel very grateful for the custom that people give to your startup and be eager to keep them happy and onside. However, you must avoid falling into the trap of bankrolling your customers. The late payment of invoices can cripple a newly established business, so it’s important that customers and clients understand the payment terms from the outset.
You should have ‘due immediately’ on your invoices, but the ideal scenario is to introduce automated payment. The downside of this is that you can lose the direct communication with customers, so to balance it out and if it suits your business type, make periodic follow-up calls to check that your customers are still happy. No value can be put on good client relationships – so nurture them all you can.
Be realistic about projects
Being asked to complete a big new project is what entrepreneurs’ dreams are made of. However, the celebration may be short-lived if you have failed to understand the cost of delivering it. You must be realistic about what your business can afford for you to do – especially if any payment is only made once the project is completed.
The key to managing your cash flow is a master of timing. You need to have clarity about how long your business can survive without the regular but consistent payments from smaller, albeit less glamorous work. One solution to this issue is to try and postpone work or extend deadlines so that you can mitigate the burden.
Poor cashflow management is a major cause of business failures. It cannot be stressed strongly enough just how important it is to have a firm hold of your finances. By being in control of your cash flow, you are laying the foundations for long term business success.