Top 8 Tips on How to Manage Your Startups Cash Flow and 3 Common Mistakes You Could Be Making

Bodie Czeladka
By Bodie Czeladka

Unless you have a financial backer with a bottomless wallet, your new business needs to keep a steady eye on the bottom line- the most common reason that many businesses may fold after launch is simply running out of money. This is a situation that arises time and time again, but can be avoided with some careful planning and these handy tips. Dilate Digital is a Perth based digital creative agency, so we know a thing or two about what it takes to get over the starting line- read on for how you can manage your cash flow to keep your new business ticking over.

1. Set a break-even benchmark

This is the first place to start, as it will give you a great target to base your efforts and financial management around. By concentrating your efforts on that goal, and breaking it into smaller, more manageable tasks, you will be more prepared with your budget along the way. This is where you’ll assess your inventory, invoicing, at current payment systems, to ensure you can meet that.

2. Watch your flow

While profit is important, don’t make the mistake of ignoring the other factors. When you’re at the beach, many of us learn not to put our backs to the sea- in case that rogue swell comes through. The same logic will tell you that even if your profits seem high, you need to watch for the expenditures to manage your cash flow, so stay familiar with your cash-flow even after you’ve reached a profitable margin.

3. Maintain a reliable reserve

Anyone beginning their Start-up journey should expect a few potholes, and they happen to all business ventures. While largely unavoidable, they aren’t unbeatable. You can lessen the impact by ensuring you have a sum aside, ready to go for if you hit dire straights. The most common sum would be able to sustain your business for three months, and the security in knowing you have this will lessen your stress, and leave you free to focus on your business.

4. Be smart with fund management

While there are rare cases where it can be left in your hands, it is usually best to leave the financial handling to a designated position, such as accountant or CFO. Even a trusted employee can help monitor cash flow, because mistakes can be made or overlooked when you’re busy, and a second set of eyes will help. This can be streamlined easily with a industry software, which is designed to provide the software you need to manage your cash, and the aid of a tax specialist to keep you on track with tax returns- so you don’t get any nasty penalties or interest.

5. Consider the ROI of financing- not just costs

If you’re thinking about delaying your payroll, or perhaps unable to take on new business, it may be advisable to find a finance option that will help. With the loss of a new client, or the loss of your employee’s faith, many small businesses with faith in their model would secure a finance option to take care of short-term hurdles.

6. Push back payables, encourage early payments

While you want your payments to come in quickly, there are a few ways you can extend your payables with suppliers or vendors, which should be used. Incoming payments can be encouraged from your customers, maybe with the offer of a discounted rate for prompt payments.

7. Spend on essentials- that includes staff

We get it , you’re proud of your business and want it to look exactly how you imagined- but most start ups began with desk lamps, not chandeliers, so be mindful of your necessary/unnecessary costs. And, while staff will be necessary, mindful staffing should be your goal. If your budget for staff is $60,000 a year, you may be able to afford two $30,000 employees- but are they worth their value? By carefully creating roles and thorough interviewing, you could create a role which compliments your needs, and only requires one highly skilled employee, who would be ready to put in the hard yards for their $50,000 salary- saving you $10,000.

8. Get tech-savvy

As much of your work will be online as offline, so get acquainted with your gadgets. By backing up files, creating spreadsheets, utilising cloud storage, and ensuring data security, you can monitor your business thoroughly, 24/7. You can even become familiar with digital marketing, and use this to promote your new business among your online community.

The three biggest mistakes in cash flow forecasting:

1. Under-committing

Cash flow forecasting is a major undertaking, and this is an integral part of your strategy to succeed. Don’t pawn the job off to a low-level employee, or think you can do without it- you don’t want to find out too late just how imperative it is.

2. Communication 

In theory, it’s rather straightforward. Watch the money coming in, and monitor it going out. However, if an account representative receives a call that the payment is not coming in for valid reasons, and forgets to pass that on, then this can develop into an issue. With the correct channels operating, information should flow easily and readily to the necessary departments, making it critical to ensure everyone is aware of their expectations and how to respond to such scenarios.

3. Forgetting to account for ‘bad weather’ 

From delayed payments, to project delays, there are a number of straws that are ready to break the camels back. Be prepared for any delays or expenditures with the tips above, so you don’t get caught out.

These tips can help you get your business into safer waters, but don’t stop there. The world of digital marketing is just taking off, and the returns are huge. If you’re looking for a creative design and services company, then call us here at Dilate. We’re always one step ahead for any online creative services, from videography and digital content, to Google Adwords campaigns and SEO.

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