If the statistics are to be believed, 4 out of every 10 new businesses will fail within the first five years. One of the main reasons young companies don’t last is, unsurprisingly, problems with cashflow.
This week’s expert guest author Pierre Jean-Claude from funded.com talks us through some of the major financial hurdles faced by startup businesses and how to avoid them. If you run a business and would like to share your advice for keeping your cashflow healthy, let us know about it in the comments section below.
One of the biggest challenges for any business startup is the ability to have positive cash flow at all times throughout the year. When times get lean, and profits go down, you can feel a pinch in your working capital and need a way to build these monetary reserves back up to their peak. The reverse holds true when profits are soaring and you are making bank – you feel the beneficial weight of some added funds sitting in your cash flow reserves ready to be spent. But, you need to even out this cyclical trend with a positive cash flow all year-round. Here are some ways you can keep your working capital positive throughout your sales cycle.
One of the easiest ways to get your cash flow in check is to stop overspending when the need is really not there. It can be tempting to buy the latest and greatest of everything for your business, but if tomorrow’s sales take a dip, you will find your reserves a little slimmer than normal. Spend cautiously on what you need for your business startup to survive each day. This can help you have the cash you need when an issue arises without having to struggle to come up with the funding.
Stay On Top Of Invoicing
Getting paid for the work you have completed is an arduous task for any startup. It is no fun chasing down late payments, but it is your responsibility as a business startup owner to make sure your invoicing goes out on time and gets paid. Getting your invoicing in order can make sure you have a steady flow of income coming in and can make sure money is left over for positive cash flow at the end of each and every month.
Track Daily-To-Day Costs
Keeping a good record of your costs all throughout the year can help you better identify where you are overspending. You may need to reign in your expenses, but without tracking them, you have no way of knowing where your cash flow is going each day. Keep a record of all the expenses you make every single day and review them to see where you can cut back. You may be making unnecessary purchases that are costing are adding up and affecting your working capital.
Keep A Cushion
If you know your business startup struggles from time-to-time with its working capital, you can plan for these times by setting aside a cushion of funds that you can rely on when you need it. This can make your slower months easier to bear and provide you a solid reserve that you can count on when an emergency arises. It can give you some added security that you have the funds when profits dip and keep you in the black all throughout the year.
Estimate Future Earning Conservatively
When you look ahead, it can be easy to overestimate what your earning will be the following year. You may anticipate sales that don’t come to fruition or unexpected circumstances could take hold. To keep your cash flow positive, be realistic in your future earnings and plan for the unexpected, so you don’t wind up in a situation where your working capital vanishes without warning.
While it goes without saying that increasing your sales can help grow your cash flow, but this is one area that business startups can lag in. Think about the ways that you can add value to your offerings and entice customers to buy more than ever before. Bundles and add-ons are simple ways to get a customer to spend more with you and help increase your sales in any given month. You need to consider all the ways that you can get each transaction to its maximum value so you can have that extra working capital after your receivables, payroll, and expenses have been paid.
Secure A Short-Term Investor
Short-term angel investors are a sure-fire way to jumpstart your business startup and get the funding you need to help with your cash flow problems. They can help provide funding when times are tough and allow you to breathe a little easier with their financial support. A short-term angel investor can provide you money to grow your business while still maintain the day-to-day flow. Paid back over a shorter amount of time, these seed investors help to give you more flexibility and provide an alternative means of securing funding for your business startup.
Create Loyal Customers
Turning your customers into to loyal fans that frequent your business on a regular basis can help you grow sales and increase your profits all throughout the year. These repeat customers can give you business start-up the boost it needs while also helping your working capital to balloon with each purchase. When you can count on a customer to return to your business, not only does it ensure another sale but it makes it easier to project future sales and keep your cash flow from dipping into the red.
Keep Inventory Lean
Making sure that you don’t overflow your inventory can also prevent a negative cash flow for your startup business. Practice being lean and only have the inventory you need at any given time. This can make a difference in your business’ bottom line and improve your cash flow situation. Having product and materials on hand may be nice, but it can affect your ability to have the cash reserves when you need it most. Keeping inventory to a minimum takes a special knack, but you will find that your operations are just as efficient and you are not waiting months to sell your backlog, affecting your monthly working capital.
Taking stock of your cash flow on a daily basis can make sure it is positively flowing each and every month. These simple tips can help you stay in the black and make your working capital less of a worry for your business startup. Planning ahead, staying lean, and growing your sales will ensure you have the cash reserves you need to keep your business startup afloat year-round.
More detailed information and useful advice can be found at http://www.Funded.com