Managing startups have never been a walk in the park. It involves marketing of products and services, employee management, budget supervision, testing product-market-fit, to mention a few. Cash flow is the total amount of money being transferred in and out of business and the purpose such money serves.
Profits or money received are known as inflows, while expenses are known as outflow. Cash inflows create value for shareholders in a company.
Fundamentally, cash flow is categorized into operational, investment, and financing cash flows. Cash flows are analyzed using a cash flow statement that reports a company’s income sources and income usage.
Operating cash flow entails money used for the running and the management of company operations like production and sale of goods or services. It is evaluated by subtracting income or revenue from operational expenses.
Cash flow also provides a report on how much money has been made or spent from various investment opportunities created by the company in a particular period. Financial cash flow shows the total amount of cash spent on company funding and capital elevation.
Cash flow is essential to the operation of every startup and small business. Founders and entrepreneurs or business owners should be well aware of their financial standings at all times.
Depending on how you handle cash flow as a startup, you can either develop your business or slowly lead it to a decline.
Table of Contents
Cash Flow Management
Several methods exist to manage your cash flow as a startup effectively; even with all the other responsibilities and operations, you may be saddled with a business owner. Cash flow management measures how much money moves in and out of your businesses within a defined time.
Money from loans, profits from investments, and sales of products or services are prime examples. These are cash that will flow progressively into your startup.
Your startup will typically spend money on services and supplies, taxes, utilities, interest on loans, and other bills. These are cash that flows out of your business.
All the money used to run a business needs to be managed; this is where cash flow management comes in. It is the process you carry out to record and supervise all that money.
Cash flow is the foundation of every small company or startup. Without good cash flow, your business won’t thrive because money gives you the ability to undertake and deal with necessary expenditures for your startup.
Managing the cash flow of your startup effectively is essential and, when done correctly, makes it easier for business owners to focus on other company demands and responsibilities.
The most significant thing about cash flow is knowing when you earned that profit and how. That’s where financial figures like accounts payable, accounts receivable, debt service, and capital expenditures come into play. These affect cash flow, and monitoring them gives you better hold on cash flow management.
Methods of Managing Cash Flow
Always Maintain a Cash Reserve
Every startup considers the possibility of shortfalls at one point or the other. These shortfalls could occur at any time, even when it looks like all the right measures have been put in place.
How you surmount these shortfalls determines the development level and success of your startups. Having cash reserves for challenging times lessens the financial burden and allows you to stay focused on growing your business.
As an entrepreneur, it is not advisable to handle the finances of your business. That includes managing and handling your accounting.
It would be best to hire an accountant to take up this task, as this leaves you to cater to other startup needs. If you can’t bring in an accountant, designate a trusted employee to handle the accounts and supervise cash flow.
You can simplify this process by using accounting tools that provide accounting software to make cash management easier. Various tools provide access to accountants, and tax specialists who will work endlessly on pay, of course, to help your company grow.
Having access to tax specialists is especially important to your cash flow, as they handle tax returns better.
Active Cash Flow Monitoring
There are software and accounting tools that make it easy to keep track of your business cash flow. With these tools, you can effectively manage accounts and generate reports regarding inflow and outflow of funds.
There is no better time for your startup to begin leveraging software accounting tools to reconcile your accounts and produce weekly or monthly reports than now.
When you review your costs, ask yourself whether you can cut expenditure across the business. For example, could you lease equipment rather than buy it or sell stuff you don’t need or use.
Use Mobile Payment and Various Payment Methods
Many mobile payment solution options enable you to get paid faster. These payment platforms and applications make it easy for customers to engage with your business better and faster.
Offering your customers various payment methods ensures flexibility in payment. This makes payments easier to complete and reduces the chances of delayed payments or canceled purchases.
Some mobile payment platforms include:
Liquidate Unused Assets
Putting up buildings, pieces of equipment, and tools you no longer require or use to generate income for sale goes a long way to increase your cash flow. It is also a good way to remove redundant assets and make good use of them. If you have no use for certain assets in your inventory, do well to put them up for sale.
Cut Costs and Spend Only On Essentials
Outside the essential things needed to run the startup, you should ensure you cut costs on every other thing. You can reduce costs on the payroll, rent, utilities, or any software that is not significant to your daily business endeavors.
There are a plethora of obstacles to creating a startup, and ensuring you have enough cash is imperative and very essential. Having enough capital enables you to tackle and surmount other challenges. The methods mentioned above go a long way to ensure cash flow and active profit income.
- Corporate Finance Institute: Operating Cash Flow
- Bluleadz: 12 Business Apps That Make Running a Business on Your Phone Easy
- Accountancy Cloud: 5 Top Tips For Managing Cash Flow For Startups
- Smash.vc: Which Online Payment Solution Should Your Startup Use?
If you’re an early stage CEO, AbstractOps handles and automates your HR, finance, and legal ops — so that you don’t have to. We help you Be Scrappy, Not Sloppy.
We understand that ops can be painful. If you have any questions or need assistance with your ops, drop us a note at email@example.com. We’ll do our best to help.