5 Tips to Avoid Cash Flow Issues For Your Startup

Whether it is a large business or a small startup, cash flow is king. Essentially, every choice or decision you make is dependent on the capital you need in order to turn production into a profitable reality. Cash flow is a major factor in the success of any business. This rings even truer for startups, whereby a steady cash flow is critical in driving everyday operations to ultimately growing and expanding the business. The faster the business grows, the more financing is required. Given that cash is the root to keeping a business alive, no cash is equivalent to no business.

It is common for small businesses to encounter cash flow issues due to several reasons. Studies have shown that more than half of businesses identify slow paying customers as the biggest challenge in managing their business cash flow. According to the US Small Business Administration, insufficient capital has been cited at the number two reason why small businesses fail. Furthermore, 43% of small business needed funds but were unable to get financing from a bank. Cash flow issues can have a detrimental impact on small businesses, especially when employees are not paid on a timely basis, leading to unhappiness and high attrition rate.

Fortunately, there are several ways to avoid these pitfalls. Here are 5 tipss that you can adopt to avoid cash flow issues for your startup.

Send invoices out on timer
Your customers will not have the chance to pay you on time if they did not even receive an invoice from your company. Many small businesses, including large organisations, have cash flow issues simply because they do not send out their invoices on time. Establish a proper timeline for sending out invoices (e.g. all invoices should be send out by the end of the first week of every month) and ensure that they go out without fail. Do note that even a couple of days late can have a major impact on your cash flow subsequently.

Be firm about the length of your payment termsr
Make it clear to your customers on the length of the payment terms. Be proactive in reminding your customers to pay up on time. At times, all it takes is a simple friendly phone call to remind your customers to send the check. If necessary, explain to them your cash flow situation and many of them will understand. Additionally, where appropriate, request for at least a partial payment upfront if possible.

Allow flexibility where necessaryr
Being a small business owner, there are times whereby you will need to be considerate of the very same challenges that other business owners might be encountering as well. When you send out invoices, expect some of your customers to be facing cash flow issues of their own. Naturally, these customers might not be able to pay you in a timely manner. Should that happen, be willing to accept partial payments in order to bring in some of the money that your customers owe you.

Have a cash flow projectionr
What do you expect your cash balance to be three or six months from now? Understanding this question can help you in planning ahead for the cash flow for your business. By having a cash flow projection, it allows you to implement certain protocols and strategies to avoid facing a cash flow crisis in the near future.

Review your purchasing practicesr
Cash flow works in two ways: money coming in and money going out. While it is great to be collecting money from your customers on a timely basis, it will be beneficial to constantly review your business’s expenditure as well. Are you buying your supplies before you need them? Are you making advanced payments before receiving your cash inflow? Resolving your cash flow issues could be as easy as maximising the way your business spend its money.