Published on March 8, 2014
No matter how successful you get, cash flow does not take care of itself: the management of money in and out of your business is something you neglect at your peril, and while it may not seem the most urgent priority, it's nevertheless crucial to a smoothly running operation.
Remember that cash flow is all about money you have in the bank, available now. It's not sales; it's not margins; it's the funds that are there in black and white at any given time of the month. The only way to avoid getting tripped up by cash flow problems is to devote time and care to managing it.
Even if sales are strong, you need to make sure they equate to money coming in. How this looks in practice will depend on the nature of your business, but check that invoice deadlines and credit agreements are strictly enforced wherever possible. Many businesses run into trouble because of the amount of money they owe, when the amount of money they're owed is even greater.
Get your end of any paperwork out of the way at the earliest opportunity, and cash cheques as soon as you get them. Don't be afraid of stockpiling more money than you think you need — one day you may rely on it. If payments are overdue, contact the party involved and see if you can help in any way.
As a startup you should know exactly how every penny of your money is being spent. Avoid tying yourself down to long-term commitments or loans if possible — renting equipment, for example, can cost more money but gives you more flexibility. Consider subcontracting, or even roping in friends and family, as an alternative to taking on more staff.
When contracts are up for renewal, renegotiate them on better terms. Look for savings wherever possible, whether it's in your marketing or your office supplies. Only by knowing precisely where the money is going can you identify areas where you're overspending and can cut back without hurting the company.
Incomings and outgoings can be difficult to predict, but don't use that as an excuse. Forecast your cash flow in as much detail as you possibly can, then reassess your figures on a regular basis. It's hard to overstate how important it is to get early warnings about potential problems while there's still an opportunity to take action.
Draw up a chart of the key dates when money is coming in and going out and make sure you're fully abreast of how much cash you should have at any given time. If you're expecting large one-off expenses in the near future, factor these in and make sure you have the resources to cover them.
Controlling cash flow is hardly the most inspiring part of running a startup, which is why so many small businesses tend to neglect it. However, it represents one of the cornerstones of a successful company: get the nuts and bolts of cash flow right, and you can enjoy the more rewarding aspects of startup life
For more tips and advice on starting and growing a small business go to … www.startupsuccess.co.uk/blog
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