Building a startup into a sustainable business requires multiple years of commitment. Know how GED can help you with cash flow management for your startup.
What is the one thing most startups overlook? Managing their finances. When there is inflow, most of us spend it in areas that we believe are necessary, thus having no contingency fund for the dark days.
As a result, we fail too often, because of the increased stress levels, and reduced income levels. However, if you manage your finances well, the dark days will stay away from you.
Let me talk about two different growth hacks for startups involving cash flow management, which will help you understand the importance of cash management at an early stage.
I co-founded a startup, which I left immediately after the maturity stage. During the early stage of the startup, we decided to spend a lot on the resources, which led us to almost shutting shop. However, the other founder’s father bailed us out and helped us get back on our feet. We owed him a few bucks that we slowly gave him back.
Eventually, we were ready to start running and were able to keep up with the finances. We understood the value of savings in those days.
One of my friends had started work on a startup application. He came to me in distress. He did not have enough funds that could manage his home as well as the startup. Eventually, despite knowing it was a good idea, he shut shop and joined another job.
Cash management is an important consideration, which most people ignore. Here I will take you through some of the tips that will help keep up the cash flow, and help you grow as a company with time.
1 Have a Control Over Spending
It is important to maintain control overspending. As we experienced, other startup founders to use up the resources they have earned into the startup, thus leaving them with no money. Not everything you earn should be spent, and not all the spending you have planned is necessary.
Chart a spending goal for the month based on the amount of money you have with you. Track every amount that you have spent using a tracker app or some such tool. Don’t get yourself tied into debts too often and too soon. You should hold onto the inventory that you can afford. This might seem old school but, when you are starting out, carve a name for your business, before you go on spending too much of your money into inventory.
Let’s say there is a significant part of the work that you want to outsource. In the initial stages, if you think you can use the DIY tools to conduct the work, do it. Don’t depend on the outside resources for the same. Frugality in spending will help you gain more.
2 Be Fast with Invoicing
With every startup, income seems to be an issue. You don’t really get the money that you have billed as soon as you need it, which is why most startups face a cash crunch. You ought to keep shorter billing cycles, and in case of products, try to get the money before you send the product.
This will help you recover the costs faster and will also help you improve your startup’s relations with the customers.
The billing should be transparent, and the customers should be aware of the cost the reason behind the pricing structure.
3 Cash Reserves Are Important
You will never know when you need more cash. Having a plan is good, but having a solid backup plan and a cash reserve will prove to be excellent. When we started out, we did not understand the importance of cash reserve but, the second time around, we did have a good reserve fund in place that allowed us to manage the expenditure and the dull days. We always had enough fund to pay our resources, and could even manage salaries better than before.
The cash reserves help in managing the company efficiently, without worrying about the days when there will be no funds for you.
4 Hire Skilled People
When you look at cash management, hiring costs should also be included in the overall spend. You ought to hire people who are experienced and capable so that your spending is recovered almost immediately. You don’t want to hire people you need to train. Get people who are empowered, and will offer solutions to the problems your company is facing. This way, your cost is justified, and in the long run, it will pay off with good profits.
5 Select your Projects Wisely
When you have more projects than you can work on, it will affect your cash flow, and in turn your profits. If you are bound to experience a growth in your inflow with the new project, try getting a deadline extension or say no to the project, as that will help you maintain the costs and keep up with the inflow. If you chew on more than what is possible, then you will not get what you already have. That could be a major blow to your startup.
6 Create Incentives Carefully
If you want people to pay up early, create incentives that will make them want to. It might affect your profit margins, but in the long run, it will keep your billing cycles optimized, and will help keep up the cash flow. With clear and incredible incentives, you will not face cash shortfall, which is the case with long billing cycles.
How can GED help you?
Your revenue forecasts heavily influence the value of your startup.
As per the equidam‘s data, startups take 24 months to go from $0 to $1M in annual revenues. But if you are not on this list, then you need to start working on it. Cash inflow is crucial to your success and growth. If you don’t want to fail or, don’t wish to shut down your business under stress, then start working on having a good cash reserve and a fail-safe plan B.
We at GED help startups to find the root cause of such problems. You can book your place at our startup ready program and get an ideal solution for your issues. Schedule the appointment today to get realistic and achievable solutions.